Eltel's finished 2025 on a high note, with Q4 revenue coming in 4% above our estimates and margins continuing their year-on-year improvement for the tenth consecutive quarter. Importantly, Norway sustained its return to profitability for the second consecutive quarter, which is critical for the overall turnaround story. We believe that the continued progress in new business areas (11% of FY25 revenue vs. 4% last year), combined with demonstrated operational and commercial improvements, supports further margin expansion. Management expressed confidence in reaching their 5% adjusted EBITA margin target within 12-18 months, providing a timeline for the first time since withdrawing it in Q3’24. While this is encouraging, we remain more cautious and believe the burden of proof is on Eltel to demonstrate that this is achievable. However, we raise our 2026-27e revenue estimates by 1-2%, primarily reflecting stronger Swedish momentum, while maintaining our margin forecasts largely intact. At the current valuation, we continue to see good risk-adjusted return potential and reiterate our Accumulate recommendation with a target price of SEK 10.2 (was SEK 9.9).

Sweden’s momentum surprised us on the upside

Group revenue increased by 6% (y/y) to 239 MEUR, above our expected 230 MEUR. EBITA continued to improve, reaching 8.3 MEUR (Q4'24: 5.7 MEUR) and a 3.5% margin, which was in line with our estimate, marking the tenth consecutive quarter of year-on-year margin improvement.  We find the revenue beat as particularly encouraging as it marked a clear reversal from the negative growth trend seen in the first three quarters of 2025. However, at a country-unit level, top-line performance was mixed across geographies. Finland grew by a modest 1% (y/y), as significant growth in the Power segment, driven by solar PV and data centers, was partially offset by declining volumes in Communication, particularly in fiber-to-the-home (FTTH). Sweden was the clear bright spot in the report with year-on-year growth of 26% (Inderes estimate: 5%), driven by strong activity in public infrastructure and market share gains in classic telecommunications. In Norway, revenue declined by 11%, as the telecommunication market remained soft. However, despite the top-line weakness, Norway delivered its second consecutive quarter of positive adjusted EBITA after more than two years of negative margins, which in our view demonstrates that the turnaround efforts are gaining some traction.

We raise our revenue estimates while keeping margins intact

The Q4 report and management's commentary suggest no major changes to the broader outlook, and we continue to see demand remaining mixed across geographies and service lines. Following the Q4 report, we have increased our 2026-27e Group revenue forecasts by 1-2%, primarily reflecting our more constructive view on Sweden’s current business momentum. While our expected growth rates for 2026-2027 remain broadly unchanged, the higher starting point naturally lifts our absolute revenue levels for the coming years. Given the in-line margin in Q4, our margin estimates remain largely unchanged, though the increased revenue estimates contributed to higher profitability levels in absolute terms. Overall, these changes had a minor positive impact on our fair value estimate in SEK, due to offsetting currency effects.

We continue to see upside in the share

Based on our updated estimates, we consider the overall earnings-based valuation for the current year as fairly neutral (EV/EBITDA 5x, EV/EBIT 10x, P/E 14x), relative to our acceptable valuation range (EV/EBITDA 5x-7x, EV/EBIT 8x-11x, P/E 9x-13x). However, we expect valuation multiples to fall to more attractive levels during 2027 (EV/EBITDA: 4x, EV/EBIT: 8x, P/E: 10x), supported by strong earnings growth. Eltel is, in our view, structurally better positioned today than before to maintain improved margins, as evidenced by its tenth consecutive quarter of year-on-year margin improvements. Consequently, we feel that we can rely more on forward-looking valuation. Our DCF model also supports our view of the valuation, indicating a value per share of SEK 10.1 (was SEK 9.9). Overall, we think the risk-adjusted expected return is good at the current share price level.