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Estimating The Intrinsic Value Of Telecom Italia Sp.A. (BIT:TIT)

I am going to run you through how I calculated the intrinsic value of Telecom Italia Sp.A. (BIT:TIT) using the discounted cash flow (DCF) method. If you want to learn more about this method, the basis for my calculations can be found in detail in the Simply Wall St analysis model. If you are reading this after March 2018 then I highly recommend you check out the latest calculation for Telecom Italia here.

Crunching the numbers

I will be using the 2-stage growth model, which takes into account the initial higher growth stage of a company’s life cycle and the steadier growth phase over the long run. To begin, I use the analyst consensus estimates of TIT’s levered free cash flow (FCF) over the next five years and discounted these values at the rate of 12.87%. This resulted in a present value of 5-year cash flow of €8.35B. Want to know how I arrived at this number? Take a look at our detailed analysis here.

BIT:TIT Future Profit Mar 10th 18
BIT:TIT Future Profit Mar 10th 18

The infographic above illustrates how TIT’s earnings are expected to move going forward, which should give you an idea of TIT’s outlook. Now we need to calculate the terminal value, which is the business’s cash flow after the first stage. I think it’s suitable to use the 10-year government bond rate of 2.8% as the steady growth rate, which is rightly below GDP growth, but more towards the conservative side. The present value of the terminal value after discounting it back five years is €11.77B.

The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is €20.13B. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of €0.96, which, compared to the current share price of €0.832, we find that Telecom Italia is about right, perhaps slightly undervalued at a 12.91% discount to what it is available for right now.

Next Steps:

Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company.

For TIT, there are three essential aspects you should look at:

  1. Financial Health: Does TIT have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

  2. Future Earnings: How does TIT’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.

  3. Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of TIT? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. The Simply Wall St app conducts a discounted cash flow for every stock on the BIT every 6 hours. If you want to find the calculation for other stocks just search here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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