Pressure on Telecom Italia's Local Business Reduced Slightly; Board Mulls KKR Offer

Telecom Italia’s service revenue increased by 3.6% organically in the fourth quarter, while EBITDA after leases declined by 1.3%, as the company’s cost base continues to face inflationary pressure. In 2023, management expects the Italian business will be back to growth, with stable revenue, and EBITDA growing by low single digits. We're not convinced by this guidance, given the hypercompetitive nature of the Italian market and management’s inaccuracy in meeting its own guidance, with several profit warnings over the last 18 months. We maintain our EUR 0.25 fair value estimate and remind investors of our Very High Morningstar Uncertainty Rating for Telecom Italia.