Eltel Q4'24: One step further in the right direction

We reiterate our Reduce recommendation and SEK 7.20 target price for Eltel. The company’s Q4 report matched our expectations at a Group level, showcasing further profitability improvements as well as continued deleveraging. Given the recent flow of large contracts, we have revised our revenue estimates upwards, which naturally lifted our profitability assumptions in absolute terms. However, we believe that current-year multiples are on the high side and that the expected risk-adjusted return over the next 12 months does not provide sufficient support for the share price.

Q4 was well in line with our estimates at Group level

In Q4, the Group’s revenue decreased by 6% to 226 MEUR, which was well in line with our forecast, reflecting the divestment of High Voltage Poland during Q2. Across Eltel’s country units, Sweden posted the strongest growth at 5% year-on-year, which was well above our our estimates (est. -7%). Respectively, Finland’s growth was broadly in line with our estimates, while Denmark’s development was notably below our estimates (act: -8% y/y, est. 0%). Norway continued to struggle, with revenue down -12% year-on-year, matching our estimates. The Group’s EBITA more than doubled from the comparison period and amounted to 5.7 MEUR, corresponding to an EBITA margin of 2.5%, both slightly exceeding our estimates (est. 5.4 MEUR & 2.4%). The margin improvement was supported by increased efficiency within the organization, progress in new and adjacent markets, and continued positive development in broadening the customer base. Compared to our estimates, Finland, Sweden, and Denmark showcased stronger-than-expected profitability, while Norway clearly fell short of our estimates. We also noted higher Group function costs than expected, which depressed the otherwise positive margin development across the country units.

Moving down the income statement, net financial costs, taxes, and minority interest were, on aggregate, slightly lower than we expected. Given the overall picture,the reported EPS landed at 0.02 EUR, above our forecast.

Clearly raised our estimates for the Finland division

To our understanding, there were no major changes in the outlook, with demand remaining mixed across regions and service areas. Outside Norway, demand appears at least decent. Reflecting on the report, management commentary, and recently signed contracts, we have raised the estimates, primarily for Finland, but also slightly for Sweden. At Group level, our revenue estimates increased by 2-3% for 2025-2026. These increased volumes naturally lifted our EBITA estimates for the next years, increasing by 5-10%. Hence, our estimate revisions further support our expectations for the company’s profitability to increase gradually in the coming years through its strategic initiatives. We discussed our estimates for the next years in more detail in our Initiation of coverage report.

On the look for further improvements before turning positive

Based on our updated estimates, we believe that the overall earnings-based valuation remain somewhat on the high side for the current year (EV/EBITDA 4x, EV/EBIT 10x, P/E 25x). However, we argue that the overall earnings-based valuation looks more reasonable in 2026 (EV/EBITDA 4x, EV/EBIT 8x, P/E 8x) and closer to an attractive territory given our acceptable valuation range (EV/EBITDA 4x-7x, EV/EBIT 7x-11x, P/E 9x-13x). If the profitability continues to improve on the path as we expect, coupled with further deleveraging, we see upside potential in the stock in the medium term. However, due to Eltel’s track record of earnings volatility, we believe it is somewhat premature to overly rely on a too distant future at this point. Reflecting this overall picture, we see the expected return on the share to be positive over the next 12 months, but slightly below the cost of equity we use, suggesting a somewhat weak risk/reward at the current share price.