Telecom Italia Earnings: Holding Up; Net Debt Rises to EUR 26.6 Billion

No-moat Telecom Italia saw shares drop by 7% during the May 30 trading session after reporting first-quarter results. Although revenue and EBITDA after leases were in line with consensus estimates, investors remain worried about Telecom Italia's debt in a hypercompetitive Italian market. Net debt during the quarter rose to EUR 26.6 billion from EUR 25.7 billion at year-end, in large part due to a EUR 250 million provision over alleged fraud. We are maintaining our EUR 0.25 fair value estimate and Very High Morningstar Uncertainty rating.