Eltel: Organic growth up, margins down - ABG

Q3 report due Wednesday, 2 November

Sales of EUR 204m, EBITA margin of 1.2% (-0.9pp y-o-y)

‘23e-‘24e adj. EBITA est. up 10-8%

Organic growth to pick up, but margins still suppressed
For Q3, we estimate sales of EUR 204m, up 5% y-o-y (5% org, 0% FX), driven by contiued solid momentum in Sweden and Norway. Additionally, we expect a q-o-q improvement for Finland and Denmark in organic growth. In Q2’22, Finland was negatively affected by a late start to the season due to cold weather combined with a strike, whereas Denmark saw challenging comps given that a customer insourced a larger contract in Q2’21. Despite increasing sales, we expect inflation to have put pressure on margins, as in previous quarters. We forecast an adj. EBITA of EUR 2.5m, corresponding to a margin of 1.2% (2.1%), -0.9pp y-o-y.

Larger order win in Finland lifts estimates
We have increased our ‘23e-‘24e sales and adj. EBITA estimates by 3-4% and 4%, respectively, driven by the recently announced contract with Caruna in Finland (see our note “Building FTTH in Finland for EUR 200m”). However, the incremental add from the contract is partly offset by FX headwinds and slighly lower underlying assumptions. For ‘23e, we estimate 6% organic growth and an adj. EBITA margin of 1.7%, up 1.1pp y-o-y. The margin improvement in ‘23e is driven by increased volumes but foremost by the fact that Eltel has secured agreements with most of its customers (in Sweden, Finland and Denmark – still in progress in Norway and Poland) to recover parts of the cost increase seen in ’22.

13-9x EV/EBITA ‘23e-‘24e
The share is down ~58% YTD and our ‘23e adj. EBITA estimates are down 37% during the same period. On our updated estimates, the share is trading at 14-9x EV/EBITA ‘23e-‘24e vs. its closest peers Netel and Transtema at 7x ‘23e and 6x ‘24e, on average.
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