Building New Towers And Integrating Solar Energy Will Improve Italy's Mobile Network

Key Takeaways

• Expansion into digital infrastructure and new tower builds is poised to drive revenue growth and boost margins.
  
• Strategic land ownership and solar integration could cut lease costs, enhancing net margins.
  
• INWIT faces revenue growth challenges due to telco industry constraints, macroeconomic factors, high leverage, and potential risks from new initiatives and regulatory changes in Italy.

Catalysts

Operates in the electronic communications infrastructure sector in Italy.

• The push for digital infrastructure expansion in Italy, such as DAS Indoor, IoT, and large connectivity projects, is expected to drive future revenue growth and improve EBITDA margins.
  
• Plans to build 3,500 new towers by 2030, particularly in urban areas for 5G upgrades, indicate potential future revenue growth as the demand for improved mobile coverage increases.
  
• The strategic initiative to double land ownership and integrate solar energy production at tower sites could lead to significant lease cost savings, positively impacting net margins.
  
• An active €400 million share buyback program planned for 2025, alongside a special dividend, is expected to enhance earnings per share (EPS) and reflect effective capital allocation.
  
• The anticipated industry consolidation from a potential 4 to 3 consolidation in Italy may spur additional investment in tower infrastructure, leading to increased revenue opportunities and enhanced financial stability.

Infrastrutture Wireless Italiane Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Infrastrutture Wireless Italiane's revenue will grow by 5.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 34.2% today to 35.0% in 3 years time.
• Analysts expect earnings to reach €419.5 million (and earnings per share of €0.47) by about May 2028, up from €353.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €481 million in earnings, and the most bearish expecting €353 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.3x on those 2028 earnings, up from 27.7x today. This future PE is greater than the current PE for the GB Telecom industry at 19.9x.
• Analysts expect the number of shares outstanding to decline by 1.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.46%, as per the Simply Wall St company report.

Infrastrutture Wireless Italiane Future Earnings Per Share Growth

Risks

• The challenging state of the telco industry could limit INWIT's ability to grow its revenue, as operators with budget constraints may postpone mobile network investments.
  
• Macro factors such as limited inflation and real growth may limit the increase in net margins, despite recent operational efficiencies and cost-control measures.
  
• High leverage could pose a risk to financial flexibility, possibly impacting net earnings if interest rates rise or market conditions change unfavorably.
  
• The execution of new growth initiatives, such as in new towers and smart infrastructure like IoT, has potential risks that could affect profitability if market adoption or technological integration is slower than anticipated.
  
• Regulator changes or macroeconomic uncertainties in Italy could potentially hinder planned expansions, affecting projected EBITDA and the overall financial performance.

Valuation

• The analysts have a consensus price target of €11.917 for Infrastrutture Wireless Italiane based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €13.5, and the most bearish reporting a price target of just €10.1.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.2 billion, earnings will come to €419.5 million, and it would be trading on a PE ratio of 32.3x, assuming you use a discount rate of 8.5%.
• Given the current share price of €10.54, the analyst price target of €11.92 is 11.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.