Eltel - Margin improvements to continue

Q2 report due on Tuesday, 27 July Adj. EBITA down 6-1% for ‘21e-‘23e Trading at 15x ‘22e EV/EBITA, 7% discount vs. peers Gradual adj. EBITA margin gains expected to continue… Eltel will report its Q2 numbers on Tuesday, 27 July.

We forecast Q2’21e to be the sixth consecutive quarter with improved adj. EBITA margins, lifting the Q2’21e LTM adj. EBITA margin to 1.

7% (vs. 1. 4% Q1’21 LTM and 1.

2% full-year 2020). As in previous quarters, we expect good cost control and the phasing-out of non-profitable contracts to be the main drivers of the improvements. Simultaneously, we estimate sales to continue decreasing by -10% y-o-y to SEK 221m.

The decline in volumes is expected to be driven by the loss of major contracts in Sweden (copper network-related service agreement completed in Q4’21) and Denmark (communication project completed in Q3’20) and divested business units during the comparable period, but partly offset by recently won framework agreements. …despite slight decline in adj. EBITA estimates We leave our organic sales growth assumptions relatively unchanged, but lower sales by -1-2% for ‘21e-‘’23e based on updated FX estimates.

In addition, we lower our adj. EBITA estimates by -6% for ‘21e and -1% for ‘22e and ‘23e respectively. The decrease in ‘21e is mainly driven by expected component shortage and price increases in Q2’21e, while the decrease in ‘22e-‘23e is entirely due to the lower sales assumptions.

Trading at 15x ‘22e EV/EBITA, 17% ‘21e-‘23e EBITA CAGR Eltel is currently trading at ~15x ‘22e EV/EBITA on our updated estimates, while offering a ‘21e-‘23e adj. EBITA CAGR of 26%. This corresponds to a discount of 7% to our peer group average.

We have left our valuation range of SEK 21-32 per share unchanged, as lower estimates are offset by rollover effects.