Morningstar

TIM Earnings: Solid Pricing Discipline Bodes Well for the Brazilian Wireless Market

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Securities In This Article
TIM SA ADR
(TIMB)

The Oi asset acquisition continues to create comparison headaches for TIM TIMB and its peers, but we believe TIM remains the weakest performer in the Brazilian wireless industry. We are increasing our fair value estimate to $18 per ADR from $16, reflecting the strengthening real but also on solid pricing discipline at TIM. We believe the shares are modestly undervalued, but we still prefer Vivo.

TIM lost another 764,000 net wireless customers during the first quarter, adding to the 1.2 million net losses the prior quarter (adjusted for the cleanup of nonpaying Oi customers). The firm’s share of total Brazilian wireless customers has declined about 2 percentage points since the Oi transaction closed. As former Oi customers migrate to new carriers, TIM appears to have been a net loser. Management expects to return to customer growth going forward as the Oi transition wraps up.

On the other hand, TIM continues to make good on its effort to maintain pricing discipline. Average revenue per customer increased to BRL 27.7 per month from BRL 26.6 during the prior quarter in what is normally a seasonally weaker period. Wireless service revenue increased 21% versus a year ago thanks to the Oi acquisition but declined 2% sequentially because of the smaller customer base and lower ancillary revenue, like interconnection. Fixed-line revenue growth decelerated to 6% from 9% last quarter, but the firm holds less than 2% of the Brazilian broadband market. TIM added 16,000 net UltraFibra customers, its best quarter in two years, and made the service available to 2.7 million new locations during the quarter, but it remains a tiny player in the Brazilian broadband market.

The adjusted EBITDA margin improved to 46% from 45% a year ago, a solid result considering inflationary cost pressures and the Oi transition. Management expects continued margin expansion as the Oi transition agreement wraps up and cost savings tied to the transaction are realized.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Michael Hodel, CFA

Sector Director
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Michael Hodel, CFA, is a sector director, AM Communication Services, for Morningstar*. He covers U.S. telecom service providers and related firms, including AT&T, Verizon, and Comcast. His team covers media companies, global telecom service providers, and owners of telecom infrastructure, such as wireless towers and data centers. The team’s research focuses on the role that evolving networking technologies, consumer habits, and industry structures play in shaping the competitive advantages and disadvantages facing firms under coverage.

Hodel joined Morningstar in 1998, initially serving within the equity data group, responsible for collecting financial information on thousands of firms. Prior to his current position, he spent two years as a portfolio manager for Morningstar Investment Management, LLC. Previously, he served as a technology strategist responsible for telecom research, chair of Morningstar’s Economic Moat Committee, and a senior member of Morningstar’s corporate credit ratings initiative.

Hodel holds a bachelor’s degree in finance, with highest honors, from the University of Illinois at Urbana-Champaign. He also holds a master’s degree in business administration from the University of Chicago Booth School of Business. He also holds the Chartered Financial Analyst® designation.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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