Translation: Original published in Finnish on 7/21/2025 at 8:30 am EEST.

We raise the target price of Telia’s share to SEK 35.0 (was 34.0), reflecting estimate changes, and reiterate our Reduce recommendation. Overall, Telia's Q2 report was relatively in line with our expectations. However, the M&A news of the last few days took the spotlight. We expect the company to grow in line with guidance, which is a good level by historical standards. The valuation picture of the stock (2025e P/E 16x and EV/EBIT 15x) remains neutral given the already tight earnings growth expectations. 

The result was in line with expectations in Q2

Telia's revenue in the second quarter decreased by 2% to
19,787 MSEK, and excluding currency effects and M&A, revenue increased by +1%. Revenue (3%) was below our expectations. Of the largest geographic markets, Sweden met our expectations, while operations in Finland and Norway fell short. Adjusted EBITDA increased by 6% to 7,787 MSEK and was in line with our and consensus expectations. The adjusted EBITDA margin was 40.3%, up 2 percentage points year-on-year, driven by substantial cost savings.

Focus on M&A news

Telia announced on Thursday that it had signed a Memorandum of Understanding regarding the sale of its Latvian operations. The parties aim to sign a final agreement by the end of Q4’25 and are targeting a closing of the transaction in Q1’26.  Additionally, on Friday morning, Telia reported on a public offer to acquire the Swedish fiber network provider Bredband2. Bredband2's revenue represents approximately 5% of Telia's revenue and 1% of its EBITDA. If the transaction is completed, Telia expects to realize relatively significant synergies given the size of the transaction. The EV/EBITDA valuation of the transaction corresponds to 10x, using 2024 figures. In our view, the valuation is somewhat high before synergies, given that the deal mainly involves buying customer accounts. In addition, Bredband2's profitability is under pressure this year as a result of marketing efforts and discounts. Although 50% of Bredband2's shareholders have committed to the takeover bid, the completion of the transaction requires the approval of more than 90% of shareholders, which we estimate will take time. We also do not expect the deal to be straightforward for the competition authorities, as we understand that the fiber market share will reach almost 50%. This acquisition aligns with the company's recent statements about its desired market position: first or second. Telia also completed the sale of its TV & Media business at the beginning of July.

Strong profit growth in 2025 due to cost savings

In 2025, the company expects comparable service revenue to grow by 2% (below 2% in H1’25 and above in H2), comparable EBITDA to grow by at least 5% (lower in Q3 and higher in Q4), investments of less than 14 BNSEK and free cash flow of 7.5 BNSEK. In our view, this year's guidance is realistic, but our forecasts coincide with the guidance levels (revenue +2% and EBITDA +5%). Revenue growth in H2 will be supported by price increases, as well as by the corporate and public sectors. Profitability, on the other hand, is driven by the substantial cost savings of 2.6 billion implemented in Q4’24 and the continuous annual cost savings of around 1 billion. In our view, it is now important for the company to continue to grow earnings and further improve cash flow in order to restore confidence in its sustainable business and reduce risk levels.

Valuation picture is neutral

We forecast Telia's adjusted P/E and EV/EBIT multiples for 2025e to be 16x and 15x, respectively. The multiples are approximately 15% below the Nordic peers and below the entire peer group. In our view, the valuation is even cautiously attractive in absolute and relative terms, but considering the improved earnings level in the current year's forecasts (where Q1 was the best quarter), previous numerous disappointments, and the level of risk associated with earnings growth in the coming years, the overall picture is still neutral. The dividend yield (6%) partially limits the stock's downside, but it is not yet sustainable and thus does not act as a safety cushion. A positive view on Telia would require better evidence of sustained performance growth without further setbacks.