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Healthy Cash Generation Boosts Telecom Italia Outlook

Shares in Telecom Italia TLIT.MI rose more than 6 percent on Wednesday after it reported healthy cash generation last year and securities filings showed its Brazilian unit was considering a joint bid for bankrupt rival Grupo Oi.

Italy’s biggest phone group, investors in which include French media company Vivendi VIV.PA and investment firm Elliott, said late on Tuesday that equity free cash flow stood at 1.7 billion euros ($1.92 billion) last year, up from 578 million in 2018.

Most analysts were taken by surprise by the company’s announcement that over the next three years it expects to generate equity free cash flow of 4.5-5 billion euros under new accounting standards, excluding masts unit INWIT which is being sold.

New Street Research analysts said in a note that the guidance was around 16% ahead of market expectations “due to underlying improvements in working capital which materially reduces what in the past has been a constant drag for TIM”.

The stock was also helped by the former state phone monopoly reinstating an ordinary dividend for the first time since 2013 and despite a target to return to core profit growth this year being postponed.

The former phone monopoly carrier, which had aimed for a return to low single-digit growth in core profit excluding leases starting this year, now sees core profit after leases falling by low single digits before returning to growth next year.

TIM’s management is due to discuss full-year results and its strategy to 2022 later on Wednesday.

In separate securities filings, TIM’s Brazilian unit TIM Participações TIMP3.SA and Telefonica Brasil VIVT4.SA said they had expressed an interest in negotiating a joint offer to buy bankrupt Brazilian carrier Grupo Oi OIBR3.SA.

TIM is currently Brazil’s third-largest wireless carrier, and buying Oi’s mobile operation would allow it to gain vital market share and expand its coverage. Telefonica Brasil, a subsidiary of Spain’s Telefonica TEF.MC, is the market leader.

If their bid is successful, the two companies would divide up the Oi business, the filings showed.

By 1130 GMT, Telecom Italia shares were up 0.9 percent at 0.37 euros, compared with a flat blue-chip index in Milan .FTMIB. The stock hit an all-time low on Monday on the back of the coronavirus outbreak in Italy.

The company said the impact of the coronavirus outbreak on Italian and global growth and the possible knock-on effect on its own plan was hard to assess.


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