TIM Earnings: A Rational Wireless Competitive Environment Lifts Revenue and Cash Flow

TIM TIMB posted another very strong quarter and presented no major surprises at an analyst day held in conjunction with the earnings release. We are increasing our fair value estimate slightly to $19 from $18 to account for higher assumed margins over the long term.

TIM added 29,000 net new wireless customers during the third quarter, only modestly lagging rivals Vivo and America Movil in most customer categories. Notably, the firm added 357,000 net postpaid phone customers, holding its share of this market steady at 21.5% for the second consecutive quarter. The prepaid market continues to shrink as customers migrate to higher-end rate plans. Average revenue per customer increased 21% versus the prior year to BRL 30.2 ($6.19) per month. Even adjusting for the removal of inactive Oi accounts, we estimate average revenue per user was still up 12% year over year.

Total service revenue increased 7.5% versus a year ago, with wireless revenue up 7.7%. Fixed-line service revenue was somewhat disappointing, increasing only 4.5%, short of the 6%-plus increase reported during the first half of the year, as competitive pressure weighs on pricing, offsetting accelerating broadband customer growth. TIM added 30,000 net UltraFibra customers during the quarter, its best showing in three years.

The adjusted EBITDA margin improved to 50% from 48% a year ago, with the benefit of wireless consolidation showing. In addition to higher pricing, sales and marketing expenses have declined sharply as a percentage of revenue. TIM continues to invest fairly heavily in its networks, with capital spending topping 18% of sales thus far in 2023, but we calculate the firm has generated BRL 1.8 billion of free cash flow through the first three quarters of the year, up from BRL 200 million last year.