Telecom Italia upgraded on recovery in cash flow

Investing.com -- Deutsche Bank upgraded Telecom Italia to Buy from Hold, raising its price target to €0.62 from €0.34, citing upside from potential consolidation and a recovery in domestic free cash flow.

Analyst Keval Khiroya said Telecom Italia has been one of the top-performing European telcos this year, though this largely reflects a rebound from prior underperformance and a low starting equity value.

DB sees two primary drivers for upside: spectrum expiries that increase the likelihood of consolidation, which could improve domestic unlevered free cash flow yields by up to 4 percentage points, and a standalone organic free cash flow recovery, with a projected 2028 domestic unlevered yield of 6.3% and group yield of 9.0%.

The bank estimates about 30% upside on a standalone basis, rising above 50% if consolidation occurs. The stock last traded at €0.48.

“TI is one of the top performing Telcos this year but this largely offsets the underperformance over the prior five years and reflects the starting point of a low implied domestic equity value,” said Keval Khiroya.

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