Analysis: KKR’s Telecom Italia approach may take time to discount in Italy

File Photo: The Tim logo will be seen at its headquarters in Rome, Italy, on November 22, 2021.Reuters / Yarranardi

November 30, 2021

By Joice Alves

London (Reuters) – Private equity giant KKR’s $ 12 billion takeover offer for Telecom Italia highlights “Italian discounts.”

Italian stocks are trading at the widest discount in nine years, with a 36% discount on global stocks, based on 12-month futures earnings, more than double the 20-year average of 16%. Will be traded.

On the other hand, the wider eurozone stock market trades at a 13.8% discount on the global index, which is only 1.2 times the 20-year average.

The explanation for this gap includes the index composition of Italy, which has a lot of “old economy” energy and bank stocks, with nearly two-thirds of Italy’s finest stocks consisting of financial companies, utilities, telecommunications, oil and gas companies. However, it is only about 20%. Of the 50 largest companies in the euro area, we operate in these sectors.

But above all, nearly zero economic growth for 20 years, an aging population, and high Italian debt levels have lowered the country’s stock prices.

James Matthews, a European equity fund, said: Invesco’s manager, for example, Delonghi, a small consumer electronics maker.

De’Longhi’s share price has risen from 11 euros in March 2020 to 29 euros now, but after reaching a record high of 40 euros in September 2021, the price-earnings ratio (PE) has risen to a French competitor. It is lower than Seb. STOXX 600 average 17 or less 15.6.

Italian discount

In the case of Telecom Italia, even after a 50% rise in stock prices following KKR’s offer, according to BofA Global, the offer means a corporate value of less than 6 times core earnings, compared to 7 times the sector average. Is one of the cheapest in the sector. research.

But those who are more skeptical of Italian stocks say they can find better returns elsewhere.

Peter Latter, Head of Equity at Royal London Asset Management, said:

According to Refinitiv data, Telecom Italia has a higher operating margin than its rivals Telefonica and BT Group, but a lower return on equity.

Meanwhile, investors have begun to shine in Italy’s midsize segment with the FTSE Italia Star Index, a record 75 SME index that surged 165% since the pandemic began in November. ..

Alberto Chiandetti, Fidelity International’s portfolio manager, has increased its allocation to Italy. Italy is the largest beneficiary of the European Union’s € 750 billion recovery fund, so it claims that such a significant price cut is not justified by many companies.

The number of issued shares of the iShares MSCI Italy ETF is approximately 18.7 million, an increase of almost 180% from November last year, far exceeding the inflow to the MSCI Eurozone ETF. Meanwhile, UBS has advised to increase its allocation to Italy, and Amundi has stated that it will selectively relocate on its listing in Milan. stock.

As Italy plans to use some of the EU’s cash to upgrade its internet infrastructure, technology-enabled companies have risen 300% since the start of the pandemic to a market capitalization of € 6.3 billion. A clear beneficiary who holds a stake in a technology services company that reaches.

“Given today’s discounts, I don’t think they’re small caps anymore. Today’s discounts are higher for medium-sized, large-cap stocks, or a single stock name that may not have been discovered yet.” Chiandetti said.

Italian discount

(Report by Joyce Alves, additional report by Danielo Masoni, edited by Saikat Chatterjee and Alexander Smith)

Analysis: KKR’s Telecom Italia approach may take time to discount in Italy

Source link Analysis: KKR’s Telecom Italia approach may take time to discount in Italy

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