Investing.com -- Telecom Italia (BIT:TLIT) reported its fourth-quarter 2024 results on Thursday, showing steady financial performance that aligned with market expectations.
Following the Netco sale, the company has shown consistent operational stability, signaling a fundamental change in its business structure.
Recent data reveals modest revenue growth, enhanced cash flow, and a focus on debt reduction, a strategy that Barclays (LON:BARC) analysts believe could strengthen investor confidence.
Total (EPA:TTEF) revenues for the quarter increased by 2.1% year-over-year, coming in 0.8% ahead of company consensus.
Organic EBITDA registered a 7.1% annual increase, slightly below consensus forecasts, while EBITDA after leases saw a stronger rise of 9.0%.
Operating free cash flow beat market expectations, primarily due to lower capital expenditures.
This resulted in a much higher equity free cash flow of €514 million, far surpassing Barclays’ €356 million estimate.
As a result, adjusted net debt after leases decreased to €7.27 billion, improving the company’s leverage ratio to 2.0x.
Despite these positives, Telecom Italia ’s domestic service revenues saw a slowdown, growing only 0.2% year-over-year, well below the consensus estimate of 0.9%.
The underperformance was largely attributed to weaker-than-expected growth in the business-to-business segment, which expanded by 3.5%, falling short of Barclays’ 6% expectation.
Meanwhile, the business-to-consumer segment faced continued challenges, with service revenues declining by 1.1%, slightly worse than Barclays’ anticipated 0.7% drop. Weakness in mobile services remains a key concern, reflecting broader industry trends.
Following the approval of Sparkle’s sale, Telecom Italia has released new financial guidance that excludes Sparkle’s performance.
For 2025, the company projects group revenue growth of 2-3%, nearly matching Barclays’ 2% prediction.
However, domestic revenue growth is expected to be slower, at 1-2%, compared to Barclays’ 3% forecast.
Group organic EBITDA after leases is projected to grow by roughly 7%, while domestic EBITDA growth is estimated at 5-6%, slightly less than Barclays’ 7% expectation.
Looking at the broader picture, Telecom Italia forecasts a 3% compound annual revenue growth rate and a 6-7% annual growth in EBITDA after leases over the 2024-2027 period.
The company remains focused on capital expenditure discipline, with plans to allocate around €6 billion in investments over three years.
By 2027, Telecom Italia aims to reduce its leverage ratio to 1.1x, maintaining its commitment to financial stability.
Additionally, the company plans an extraordinary dividend from the Sparkle sale, estimated at €350 million in 2026, and intends to resume regular shareholder returns from 2026 onwards, targeting a payout of approximately 70% of free cash flow.
Barclays maintains an overall neutral stance on the European telecom sector but holds an overweight rating on Telecom Italia’s stock.
The brokerage has set a price target of €0.35, implying a potential upside of 14.6% from its recent trading price of €0.31.
Analysts believe that while structural improvements and deleveraging efforts are positive, the company’s revenue challenges, particularly in its domestic market, will require close monitoring.