TIM: FINALIZATION OF THE INVESTOR SEARCH PROCESS, WORSEING MID-TERM OUTLOOK, CHANGE OF FINANCIAL FORECAST

Considering the following factors:

the process of searching for an investor for TIM, which has been going on for several years,

the tender offer price giving a premium to both our valuation and TIM's quotations for the last 15 years or more,

positive opinion of the company's management board and its main shareholders (who signed an investor agreement with Würth in March this year, and submitted subscriptions in the tender offer in May),

forecasted deterioration of results due to the weaker economic situation in the industry,

limiting current payments to shareholders (dividends), we consider the proposal submitted by the German investor in the tender offer to be attractive.

We expect a positive response from the remaining shareholders and the tender offer to be completed. As a result, the shares of TIM SA will be withdrawn from trading on the stock exchange.

WORSEING MID-TERM OUTLOOK

TIM publishes monthly sales results in the commercial segment (TIM SA). The slowdown in the growth rate is clearly visible (the last 2 months even brought a decrease in revenues in relation to y/y), and the local revenue peak (on a 12-month basis, LTM) occurred in February this year. PLN 1.46 billion.

Reversal of the trend in the commercial business

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In a high inflation environment, these results are additionally distorted by price changes. Adjusting the nominal data for the inflation rate (we assumed producer inflation - PPI), real revenues reached their local extreme a year ago. Since March 2022, the increase in sales in the retail business has been driven mainly by the increase in prices, which in our opinion better reflects the downturn in the industry. Market trends are also confirmed by the data presented by another company from the sector - Grodno SA.

Market weakness signals

Source: TIM, Grodno, Central Statistical Office, Noble Securities

Recent quarters have also brought a decrease in the margin on goods, accompanied by an increase in costs. The narrowing spread had an impact on the decline in profits in the third and fourth quarters of 2022 (net profit -25% and -2% y/y, respectively, with an increase in revenues). We expect negative trends to continue in the following quarters of 2023

Narrowing spread

Source: TIM, Noble Securities

Our estimates of results for Q1 2023 assume a decrease in revenues and profits.

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Source: TIM, F - Noble Securities forecast

According to monthly sales reports, in Q1 2023 approx. PLN 365 million (-7% y/y) of revenues from the retail business and approx. PLN 385 million of consolidated sales (-7%) can be expected. We also forecast a decrease in the margin on goods (19.5% vs. 20.6% a year ago) and an increase in operating costs in TIM SA (to over 14% of sales). In the logistics business (generating a significant part of revenues from fees per logistics operation), the economic downturn and the decline in sales volumes with major customers had a negative impact on the volume of generated results. We assumed no operating profit and approx. PLN 5-6 million EBITDA in 3LP. The balance of financial activity is mainly interest on liabilities in 3LP at the level of approx. PLN 3-3.5 million per quarter (exchange differences insignificant at stable exchange rates).

CHANGE OF FINANCIAL FORECAST

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Michał Sztabler

Equity Analyst

michal.sztabler@noblesecurities.pl

+48 22 244 13 03

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