Bredband2: EBIT margin in the limelight - ABG

Better Q1 EBIT margin on lower opex...
...but we cut '23e-'25e EBIT by 4-2% on lower sales
ARPU should increase ahead, 9% '23e lease adj. FCF yield


Solid Q1 EBIT margin, driven by lower opex

With Q1 sales of SEK 383m (-1% vs. ABGSCe SEK 387m), Bredband2 delivered flat growth (both y-o-y and q-o-q), reflecting increased churn on the back of price increases. While the latter usually lends a tailwind to the gross margin, the metric declined to 33.9% (vs. 34.4% in Q4) amid raised network prices and an unfavourable customer mix (relating to the increased churn). Although gross profit declined 5% y-o-y and was -3% vs. ABGSCe, Bredband2 maintained good cost control (opex -6% y-o-y), driving a sequentially improved EBIT margin to 6.5%, with EBIT +4% vs. our forecast. As expected, the customer intake was weak at -2,500 q-o-q. Here, we also note that its key peer, Bahnhof, saw a softer net customer intake in Q1, underpinning that the fibre market is maturing (fibre now accounts for ~80% of all fixed broadband connections) and that recently increased market prices entail higher churn.

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/bredband2/Equity-research/2023/5/bredband2---ebit-margin-in-the-limelight/