Bredband2: ARPU gains outweigh churn pains - ABG

* Solid top-line and earnings growth, but elevated churn* We lower '25e-'26e adj. EBITA by 3-2% on slightly lower margins* Telia's bid currently in the limelight; we expect it to passSolid growth, but elevated churnBredband2 delivered a solid set of numbers, with adj. EBITA +10% y-o-y (albeit -5% vs. ABGSCe due to slightly higher costs) on the back of +9% sales growth y-o-y, of which the majority was organic (we estimate 7% organic growth). However, as expected, churn was elevated due to recent price hikes, driving a net customer intake of -2,600 q-o-q (vs. ABGSCe -500). Churn related to price hikes is typically short-lived, so we expect an improved customer intake in Q4e, while margins should improve due to higher gross margins and operational leverage on costs. Regarding the latter, Bredband2 emphasised the use of AI tools to improve efficiency, which is a trend that we have also observed among other telecom companies.Estimate revisionsWe make small revisions to our sales estimates, but lower '25e-'26e adj. EBITA by 3-2% on slightly lower margins. After weak earnings momentum in H1, Q3 was a step in the right direction, and we expect a period of improved earnings growth over the next three quarters (Q4e adj. EBITA +8% y-o-y) thanks to Bredband2's intensified focus on margins. We now expect adj. EBITA to increase by 2% in '25e and by 20% in '26e.Phase two investigation initiatedIn our view, Telia's cash offer of SEK 3.25/share is a perfectly sensible strategic move. Similarly to how Bredband2 has been able to reap significant cost synergies through recent M&A – including the acquisitions of A3 and Bredbandsson – we argue that the synergy potential with Telia is immense. However, the Swedish Competition Authority has decided to initiate a Phase Two investigation as part of the competition assessment, with a decision planned by 17 January at the latest. While visibility remains limited, we continue to expect the bid to be approved.