Fitch Upgraded Telecom Italia After The Close

New Profile: Ba2[P]/BB/BB

Fitch upgraded TIM to BB from BB- on the NetCo disposal which should see a rduction in gross debt by EUR 13bn to EUR 13.2bn by end-2024. Seems like cash flow will be the factor in focus on upside potential with the chosen cash flow metric seen at 1.4% by 2026 against an upgrade threshold of 5% by 2027.

• TIM's strong market positions in Italy and Brazil aid stability, despite FX risks. Liquidity post-disposal is EUR 7.8bn, covering maturities through 2025.
• TIM’s net debt estimated at EUR 8.5bn for 2024 with EBITDA leverage to improve from 2.6x in 2024 to 2.4x by 2027.
• CFO-less-CapEx-to-Debt expected to stay weak from <0% in 2024, only gradually improving to 1.4% by 2026. Potential strategic divestments (e.g., Sparkle, Infrastrutture Wireless Italiane) could further reduce debt and drive upside while the compensation payment from the 1998 concession charge dispute could lower leverage by 0.3x.
• Fitch expect post-split revenue growth of ~1% annually with enterprise growth offsetting slower consumer and Brazillian growth post-FX conversion. EBITDA CAGR seen around 2.7% from 2024-2027 driven by Enterprise at ~7.1% and offset by Consumer ~2.6%.
• Upside thresholds given at leverage sustainably <2.7x, CFO-less-CapEx-to-Debt reaching 5% by 2027 with a structural trend towards 9%, domestic EBITDA contribution remaining >50% and accelerated inorganic deleveraging.
• Downside thresholds of leverage sustainably >2.7x, CFO-less-CapEx-to-Debt remaining week and by 2027 and structurally below 7% over the LT, material increase in FX-sensitive Brazillian EBITDA contribution and a coverage ratio <4.5x.