TIM Earnings: Continued Pricing Discipline Drives Strong Growth and Margin Expansion

TIM TIMB posted solid second-quarter results, returning to postpaid wireless customer growth for the first time since the Oi acquisition closed last year, while still pushing revenue per customer and profitability sharply higher. Our fair value estimate remains $18 per ADR, and we believe the shares are modestly undervalued. We continue to prefer Vivo over TIM for exposure to the Brazilian telecom market.

TIM lost 496,000 net wireless customers during the second quarter, but the composition of its customer base continues to improve as an increasing portion of the population adopts postpaid plans. Mirroring Vivo’s results, TIM lost over 1 million net prepaid wireless accounts while adding 519,000 postpaid customers, including 279,000 postpaid phone customers. The firm’s share of the postpaid market was stable versus the prior quarter for the first time over the past year.

TIM continues to maintain strong pricing discipline. Average revenue per customer increased 13% versus the prior year to BRL 29.2 ($5.89) per month. While the Oi acquisition makes this figure look stronger than reality, ARPU was still up more than 5% from the prior quarter, driven by higher postpaid prices. TIM expects to increase prepaid pricing during the second half of 2023, which should directly benefit revenue while also likely pushing prepaid customers toward the more lucrative postpaid business.

Total service revenue increased 9.5% versus a year ago, with wireless revenue up 9.7% and fixed-line sales increasing 6.5%. UltraFibra growth continues to accelerate, with 29,000 net customer additions during the quarter, but TIM remains a tiny player in the highly competitive Brazilian broadband market.

The adjusted EBITDA margin improved to 50% from 46% a year ago on the benefit of higher pricing, Oi transition costs rolling off, diminished marketing spending, and a decline in bad debt expenses. We expect margins will remain around this level going forward.