Bredband2: Price hikes starting to bear fruit - ABG

• EBITA up 17% y-o-y, 14% ahead of ABGSCe
• We lift '23e-'25e EBITA by 5-4%
• 10x '23e EV/EBITA, easy comps near-term

Customer intake more resilient than expected
After delivering flat sales for five consecutive quarters, Bredband2's Q2 results showed good progress. Sales of SEK 393m grew 3% y-o-y (+2% vs. ABGSCe), driven by recent price hikes (which our price tracker confirms) while net customer intake was flat q-o-q and -1% y-o-y. The latter was a solid outcome (ABGSCe -2,500 customers q-o-q) and likely stemmed from good gross customer intake, as price hikes usually entail churn.

Our price tracker suggests that Bredband2 has done more price hikes in Q3, so we expect churn to stay high for the same period, improving from then. On gross margins, the Q2 metric of 33.7% declined from 33.9% in Q1, which was partly due to raised prices from the network owners (e.g. Telia). Although this will remain a headwind to the gross margin in H2, we expect improved sales from the raised prices to fully compensate for the negative impact. Finally, EBITA of SEK 34m came in 14% above our forecast, driven by continued good cost control (opex -6% y-o-y), and the higher sales. The EBITA margin was 8.7%, up from 7.7% in Q1'23, and we see good prospects for further margin improvements in H2e.

Länk till analysen i sin helhet: https://cr.abgsc.com/contentassets/85b0146c0927410d986e82497f405026/pdf/price-hikes-starting-to-bear-fruit.pdf