Bredband2 - A3 in the books, now we look for synergies
Q4 sales (excl. A3) in line with ABGSCe, up 6% y-o-y We raise our estimates due to the A3 merger Share is currently trading at 9x 2022e EV/EBITDA All eyes are on the integration of A3 The merger between Bredband2 and A3 was completed on November 30, meaning that Q4 was the first quarter with consolidated numbers. Sales were SEK 249m, up 44% y-o-y (+6% organic), of which A3 contributed SEK 65m. In organic terms, this was a 0% deviation vs.
our sales estimate (note that we had not included A3 into our forecasts). Q4 customer intake was 214,000. Although BRE2 did not report organic customer intake, we estimate that it was positive q-o-q.
The gross margin declined 0. 2pp q-o-q, mainly due to A3’s lower gross margins. Adjusting for this, we estimate that the gross margin improved slightly from Q3.
Amid the company’s ambition to reap cost synergies between the two entities (both personnel costs other external costs), the firm took restructuring costs of SEK 13. 7m in Q4. This resulted in EBITDA of SEK 9.
6m, while adj. EBITDA was SEK 23m for a margin of 9. 3%.
We expect clear cost synergies with full effect in Q3 The business combination makes a lot of sense, as the two companies are relatively similar (e. g. focusing on the active fibre network, similar sales composition, strong cost synergies) and the merger means that BRE2 emerges as the third-largest player in the Swedish broadband market in terms of fibre connections.
We incorporate A3 into our forecasts and raise ‘21-22e sales and EBIT by ~105% and 61-78%, respectively. Our ‘21e EPS is down 3% amid higher D&A forecasts and a higher number of shares. We estimate material cost synergies ahead, with full effect in Q3’21e.
We forecast ‘22 EBITDA of SEK 217m (12. 9% margin) vs. the adj.
pro forma-based Q3’20 R12m EBITDA of SEK 146m (9. 8% margin). We note that BRE2’s peer Bahnhof currently has margins of c.
15%, meaning there could be upside potential to our estimate if BRE2 reaches similar operational leverage on its s.
