da Intermonte – INTRED company research report

Buon pomeriggio,

di seguito e in allegato inviamo il company research report relativo a INTRED a cura di Intermonte.

Rimaniamo a disposizione per ulteriori informazioni.   

Un caro saluto

Laura Morreale

M. +327 3435530

First-Mover Advantage on Fibre in Wealthiest Italian Region

• Leadership built on a proprietary network in Lombardy. Brescia-based and founded in 1996, INTRED offers UBB connectivity to businesses and residential clients, leveraging on its proprietary cutting-edge network (>10,600km, total investment of >€120mn to date) in the extremely vibrant Lombardy region (1/5 of Italy’s GDP). By providing its services to SMEs (53% of 1H23 sales), residential (19%), wholesale (8%) and public-sector clients (21%), INTRED makes full use of its network. The Group has been listed on EGM since July 2018 (IPO price €2.27) and currently employs c.180 skilled people. In February 2020, INTRED secured further expansion thanks to the acquisition of QCOM (80 employees, 4.3k business clients) for c.€10mn.
• Key competitive advantage is basis for seizing favourable structural trends. In 2010, management decided to create a proprietary network, starting from the province of Brescia and then moving to other cities, focusing on rural areas ignored by the major telecom providers. This has ended up being a crucial competitive advantage, enabling INTRED to compete on pricing and service quality, reaching best-in-class profitability (>40%) thanks to customer base expansion (>47k customers at 1H23). Moreover, the company is well positioned to exploit favourable structural trends: Italy’s UBB take-up rate is among the lowest in Europe, including for SMEs, offering INTRED first-mover advantage by taking fibre to areas with high concentrations of SMEs, and to benefit from public funds (NRRP) for the digital sector.
• School tenders as a strong accelerator of growth. Further upside should come from the two Infratel School Tenders awarded in 2021–2022, expected to be worth c.€60mn in total, and involving the connection of >5.2k schools in the coming years. This should offer INTRED a great chance to expand its network into new cities (like Milan) and commercial districts.
• A track record of outstanding success. The top line grew organically from €9.1mn in FY15 to €45.5mn in FY22, a 26% CAGR. The launch of a residential offering has enabled exploitation of favourable operating leverage on fixed expenses associated with the current private network. The adj. EBITDA margin on total revenues increased from 18.7% in FY14 to 43.1% in FY22 and 43.5% in 1H23. Given the high revenue visibility (85% of invoices paid well ahead within 30 days of billing) and the nature of fees (>90% of turnover is recurring), INTRED has a compelling risk/return profile.
• 2023-26 estimates: short-term commercial and network investment to support long-term growth. We project a 11% sales CAGR, driven by +33% growth in the public sector (School Tenders) and ongoing best-in-class profitability (42-43%) despite higher commercial investments to support brand and future top-line growth (acceleration of fibre take-up), partly mitigated by lower network costs (reducing reliance on the incumbent’s last mile due to faster and deeper rollout of proprietary network). Near term, we assume bottom-line trends burdened by higher D&A for the CapEx cycle (€28-30mn peak in FY23) and by the increase in financial expenses.
• Initiating coverage with a BUY recommendation and a €15.5 DCF-based TP with >40% upside. We appreciate INTRED’s business model as it offers a very attractive risk-return profile thanks to: a) a proprietary network focused on future-proof UBB technology (no risk of disruptive change and limited long-term CapEx) and first-mover advantage in Lombardy, a highly strategic location (1/5 of Italy’s GDP) with strong presence of SMEs; b) footprint expansion from School Tenders and new commercial investment cycle to support long-term growth and a faster take-up rate. c) strong visibility on IRR (upfront CapEx with guaranteed returns) with downside protection (visible and recurring revenue streams, low churn); d) a supportive regulatory framework (NRRP); e) long term optionality offered by attractive assets (proprietary network, well-established and loyal customer base) in a potential market consolidation scenario.