Eltel - Sales down, margins up – as expected

Sixth consecutive quarter with improving margins ‘21e-‘23e adj. EBITA estimates down 10-8% 17x ‘22e EV/EBITA, in line with the peer group average Slight sales miss, but profitability in line Eltel delivered weaker sales than expected at EUR 210m (-5% vs ABGSCe of EUR 221m), down -14% y-o-y, which was anticipated due to recent divestments, the loss of two larger contracts included in the comparable period and a continued negative impact from Covid-19. The latter resulted in lower customer activity, a lack of materials, and increased prices. Despite the sales miss, Eltel managed to generate an adj.

EBITA in line with estimates at EUR 4. 4m (-2% vs. ABGSCe) and an adj.

EBITA margin of 2. 1% (1. 3%) vs.

ABGSCe at 2. 0%. The margin expansion was driven by operational efficiency and the ongoing phasing out of unprofitable contracts.

However, the adj. EBITA margin was slightly boosted since the Denmark segment had a positive one-off of EUR 0. 8m related to a partial insourcing of business by a major customer.

Net profit was EUR 1. 6m (-4% vs. ABGSCe at EUR 1.

7m). Estimates slightly down on sales miss We slightly lower our ‘21-‘22 sales estimates by -3% and -1%, respectively, due to the sales miss in Q2’21. We expect ‘21e sales of SEK 830m, down -12% y-o-y.

We expect Eltel to reverse the downturn in net sales and generate sales growth of 1-2% in ‘22e and ‘23e. Eltel has communicated that it is preparing for potential future acquisitions, which could add to our estimates. Meanwhile, we lower ‘21e-‘23e adj.

EBITA by 10%-8% based on lower sales and margin assumptions. The latter since the adj. EBITA boost in Denmark is expected to be isolated to Q2’21.

17x ‘22e EV/EBITA, a 2021e-’23e adj. EBITA CAGR of 27% Eltel is trading at 17x ‘22e EV/EBITA, which is in line with the peer group average, while offering a ‘21e-‘23e adj. EBITA CAGR of 27%.

We slightly lower our fair value range to SEK 19-30 per share (21-32) based on the lower EBITA estimates.