Eltel - The enabler of the future
Nordic field service provider with improving profitability ’20-’23e adj. EBITA CAGR of 42% Fair valuation range of SEK 21-32 per share Increasing focus on the Nordics, improved profitability Eltel is the leading Nordic field service provider for critical power and communication networks. The company offers a wide range of solutions, from maintenance and upgrades to project deliveries. Approximately 90% of sales are generated in the Nordic countries, benefitting from several ongoing trends driving market growth.
Eltel had some challenging years shortly after its IPO in 2015. The company conducted a strategic review in 2016, which resulted in a three-phase turnaround strategy and the recruitment of current CEO Casimir Lindholm in 2018. Eltel is now midway through the second phase of the turnaround strategy, with an improved balance sheet and margins, plus an increased focus on two core operations (Power and Communication) in the Nordics.
We expect the company to continue improving its margins, and to use the strong cash generation to start paying dividends to its shareholders. ’20-’23e adj. EBITA CAGR of 42% In ’17-’20 Eltel’s sales declined by a CAGR of 11%, driven by divestments/phase-out of non-core and unprofitable activities, which was in line with the company’s strategic objectives.
At the same time, the company successfully improved its adjusted EBITA margin from c. -2% in ’17 to 1. 2% in ’20.
Moreover, Eltel substantially reduced its ND/EBITDA and NWC and thereby strengthened its balance sheet. We forecast the company to grow at an adjusted EBITA CAGR of 42% from ’20 to ’23e, driven by further improvements in profitability. Fair value range of SEK 21-32 We have used three valuation methods and have weighted them accordingly to derive a fair valuation range for Eltel.
Based on our findings, we arrive at a fair value range of SEK 21-32 per share. This value is sensitive to margins and the WACC, with the main risks including stagnant margins and reduced.