Bredband2: Operational leverage driving earnings growth - ABG

- Sales +5% y-o-y, EBITA +38% y-o-y
- We lift '24e-'25e EBITA by 3% on 1% lower opex
- 10x '24e EV/EBITA, we estimate 14% EBITA growth in '24

Another strong quarter in the books
Bredband2 maintained its recent positive trajectory in Q4, delivering +5% sales growth y-o-y (0% vs. ABGSCe) and continued margin-expansion (EBITA +38% y-o-y, 12% ahead of ABGSCe) on the back of operational leverage and good cost control (opex -3% y-o-y). In contrary to the lukewarm Q3 in terms of customer intake (-2,800 q-o-q), Bredband2 saw a sequential intake of +2,000 (vs. ABGSCe of -1,500), likely on the back of increased marketing campaigns and subsequently lower list prices, which our price tracker also suggests. The latter also bodes well for a solid customer intake in the coming quarters, while Q1e will also be spurred by the additional ~40k from the acquisition of Stockholms Stadsnät (consolidated 1 Feb). Gross margins have improved well lately, though we expect a slight contraction in H1'24 as we believe that most low-hanging fruits have been picked, bolstered by the price increases that commenced earlier in 2023. Finally, lease adj. FCF was strong in Q4 (+43% y-o-y), driven by a positive NWC release.

We lift '24e-'25e EBITA by 3%
We essentially make no changes to our sales forecasts, but lift '24e-'25e EBITA by 3% on the back of slightly lower opex assumptions. We note easy comps in Q1 before becoming tougher in Q2 and H2. We now expect 14% EBITA growth in '24e (vs. 19% in '23), partly driven by Stockholm Stadsnät, which accounts for ~3pp of the EBITA growth.

10x-9x '24e-'25e EV/EBITA, 8% lease adj. FCF yields
The current f12m EV/EBITA multiple of c. 10x is at the lower end of its historical range. Amid the recent recovery in earnings growth, the share has lately performed well, up 48% in the L6M. We continue to expect solid earnings growth in 2024e and see more M&A potential, and note that the share offers 8% lease adj. FCF yields in '24e-'25e.