Q3 23: biding adieu to the long-standing target

After pre-releasing its results and announcing a SEK 31.9bn impairment last week, Ericsson today released its detailed Q3 result. While the Q3 figures were in line with our estimates, the outlook provided by the company is quite disappointing. Ericsson has also moved its long-standing FY24e EBITA target of 15-18% to the “medium-term”, depending on the market recovery.

Q2 23: the saga of disappointing guidance continues

Ericsson published better-than-expected Q2 23 figures, thanks to a better performance in Networks as well as its CSS businesses. However, the company’s Q3 23 guidance is below consensus expectations and its ability to achieve the 2024 targets seem to be further away. As a result, we will revise our estimates downwards and also expect a consensus downgrade.

Q1 23: Earnings to bottom-out next quarter

Ericsson published weaker-than-expected Q1 23 figures, impacted by a change in business mix and a SEK 1bn restructuring charge (SEK 7bn for the full year). The company guided for a weaker Q2, with a mid-single-digit EBITA margin despite a slight increase in revenues driven by a seasonality effect in CSS and growth (albeit slow) in the Enterprise segment. We expect the cost saving efforts to be visible from H2 23, with the transformational efforts completely visible from 2024 onwards.

Q3-22: weak margins justly frighten the market

Ericsson has published strong sales but several headwinds are impacting its margin generation which has caused a significant miss in profitability. Although some of the effects are one-offs, most are expected to remain around over the long term. The capex of mobile operators is also expected to decrease in FY23, which implies less growth for the coming year. In addition, there is still no news from the DoJ.

New structure with new protagonists

Ericsson has announced a vast reorganization of the group reporting structure and of its executive board members. Through the merger of two business divisions and the creation of a new one, we believe Ericsson wants to ring fence the strong performance of its Enterprise business, one of the pillars of its future profit generation strategy. The plan involves the replacement of three executive board members with two new ones.

Q1 22: a miss and fear of the DoJ

Ericsson has missed the consensus in profitability due to several one-offs. Rising inventory levels and increased R&D spending are expected to stay and will weigh on cash generation for the coming quarters. The DoJ’s potential sanction is imminent, and there is still limited visibility of what it is likely to be.

Ericsson could have sponsored ISIS

Ericsson is in an embarrassing situation whereby it may have been involved in embezzlement to a terrorist organisation. Its business in Iraq has undergone an internal investigation after Ericsson had discovered irregularities in its transactions. Under media pressure, Ericsson has disclosed the situation, and it does not look pretty.

Q4 21: Ericsson beats, again

Ericsson has proved once again that it has managed to offset the market share loss in China by strong organic growth and better than anticipated profitability. It has recorded the best FCF in its history and has announced an impressive dividend increase for FY21. Globally, strong results and a strong year ahead.

Q3 21: China's impact offset by strong US momentum

Ericsson released solid Q3 results. As a reminder, the Chinese ban on the Swedish Telecom Equipment manufacturer has been the reason for the recent poor momentum, down 20% since mid-April. These results could change this as Ericsson has proved that it doesn’t need China to generate strong margins.

Q2 21: Chinese market share loss hits profit guidance

Ericsson published revenues and EBIT below consensus as a result of a SEK-2.5bn sales decline in China and a decrease in IPR of SEK0.5bn. In its previous guidance, China was expected to be its main growth driver. The group will now have to organise outside China as more market share loss is expected.

Q4 20: ending the year on a robust note

Ericsson published its fourth quarter figures with a strong beat in profitability. While sales were slightly above expectations thanks to a strong 5G roll-out, the operating margin level has already reached the 2022 guidance range. Throughout the final quarter of 2020, Ericsson managed to strengthen its market position, boding well for subsequent years.

Keeps the edge

Ericsson held a virtual 2020 CMD. On this occasion, the company reconfirmed all its near-term objectives and introduced new long-term guidance. To achieve these, the company’s strategy te will be articulated around three pillars of growth: M&A, enterprise businesses, and market shares gains in the core businesses.

Q3 20: fuelled by China and market share gains

Ericsson released strong results, benefiting from the rollout of 5G networks across the US and China as well as market share gains in Europe. This was also a clear beat over the consensus in terms of profitability, sustained by the improving margin in Network. Going forward, the company maintains its financial objective for both 2020 and 2021.

Q2 20: emerging stronger from the crisis

Ericsson’s Q2 results beat the market on the back of growing needs for connectivity, which was somewhat enhanced by the recent health crisis. The company improved its market share in both Mainland China and Europe, while the 5G momentum in the USA remained strong, leading to a positive development at the profitability level. Guidance is maintained for both 2020 and 2022.

Q1 20: better profitability and FY guidance maintained despite COVID-19 pandemic

Ericsson’s Q1 revenue was rather in line with expectations, while profitability beat expectations. The COVID-19 pandemic has had a limited impact on operations, but the company is concerned about potential delays in Europe going forward, though still maintaining both 2020 and 2022 guidance.

Filtronic - LEO liftoff: SpaceX strategic agreement and $20m order

Just 15 months after winning its first order in the Low Earth Orbit (LEO) satellite communications market, Filtronic has announced a 5-year strategic partnership with SpaceX which includes an initial $19.7m (£15.8m) E-band amplifier production order for delivery in FY25. As a result, we upgrade our FY24/FY25 forecasts and lift our target price to 57.4p (was 37.5p), equivalent to 74% upside. Although this is the first time SpaceX’s Starlink has been named as a Filtronic customer, this is now the

Morning Note – 24 April 2024

Hybridan Small Cap Feast - 24 April 24

24th April 2024 * A corporate client of Hybridan LLP ** Arranged by type of listing and date of announcement *** Alphabetically arranged **** Potential means Intention to Float (ITF) has been announced Dish of the day Admissions: Delistings: What’s baking in the oven? ** Potential**** Initial Public Offerings: Reverse Takeovers: 16 April 2024: Electric Guitar (ELEG.L) Concurrent with its Admission to trading on AIM, Electric Guitar is proposing to acquire the entire issued share capital of 3radi

CyanConnode (CYAN LN) - FY24 update: revenue materially ahead

CyanConnode exceeded FY24 revenue expectations and has high visibility into FY25, supported by strong deliveries and a growing backlog respectively.

Hybridan Research: Sector Review: Artificial intelligence in UK cybersecurity: the human uplift 17/04/2024

Artificial intelligence (AI) is a double-edged sword in cybersecurity. Whilst new AI models, architectures, and innovations are emerging to protect the security posture of organisations, attackers are also benefiting from deepfakes, sophisticated phishing, and automation of malicious codes. To ensure the impact of AI on cybersecurity to be a net-positive, we need to pit good AI against bad AI. Point solutions enhanced with machine learning: Global cybersecurity has been built with point soluti

SRT Marine Systems - FY24 update: revenue forecasts pushed out for new June YE

SRT Marine Systems has reported a change of year end from 12-months to March 2024 to 15-months to June 2024, with revenue forecasts extended by three months for both new year ends, and an encouraging operational update. The company is concerned that government related paperwork on two existing CG projects (SEA and ME) may not be completed in time for a March invoice and risks falling into the next quarter. In one jurisdiction where there a number of new project prospects, the company must meet s

Filtronic - Backlog supports strong growth from H224

Filtronic’s recent investment and focus on high-performance radio frequency (RF) design and manufacturing is starting to pay off, with recent new customer wins, development contracts and volume production orders boosting the order backlog. H124 results do not reflect this recent success: revenue was essentially flat and investment in sales and engineering reduced EBITDA. However, the strong backlog gives management confidence that revenue and profit will exceed consensus estimates for FY24 and F

Morning Note – 21 December 2023

Calnex Solutions - FY24 trading update – marking time

Calnex has released a pre-close trading update for the year to March 2024, indicating that revenue would be £16.3m, c£0.7m below our forecast, partly due to the timing of orders at the end of the period. Group trading has been impacted by the well-documented, continuing challenges in the Telecoms sector which have seen delayed project timings leading to corresponding delays in customer spending. Administrative costs are being controlled and are focussed on maintaining R&D. Calnex remains confide

BATM+ (BVC, House Stock at 18p) - New client Edgility contract

Filtronic - H1/24 Riding the EM-waves across land, sea and space

Filtronic has reported results in-line with management expectations for H1/24, and now expects to perform ahead of our forecasts for FY24E and FY25E in terms of revenue and profit. We are raising our revenue forecasts for FY24E and FY25E by 14.6% and 6.2% respectively, and our EBITDA forecasts by 85.2% and 28.0% respectively. The increase in expectation is driven by a strong recent acceleration in order flow, including a £7.8m order announced today. In this report we present a detailed review of

Hybridan Small Cap Feast - 06 Feb 24

6th February 2024 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment obje

Thunderclap in British telecoms

FY23 revenues and EBITDA were in line with expectations. The major news was that BT plans to shed more than 40% of staff. At the end of the decade the EBITDA could reach £11bn with the massive restructuring announced and capex could return to €3.5bn per year. EBITDA less capex could be multiplied by 2.5 and therefore also the dividend. This could value BT at 385 pence at that time. We maintain our opinion at Add on the stock.

A fairly safe long term buy and hold

A decent Q1 performance despite the expected headwinds from cost-of-living pressure and cost inflation. The group is clearly a fairly safe long-term buy and hold. BT plans to shed more than 40% of staff by the end of the decade. In parallel it is further accelerating its FTTP deployment with high capex. But at the end of this phase EBITDA-capex could be multiplied by 2.5. Speculation could also again reignite as Drahi’s empire (owning 24.5% of BT) is being shaken by corruption cases.

Increasingly aggressive on the TV side

Q4 revenues were only up by 1.3% yoy (excluding the inclusion of EE for two months). A better performance than might be thought at first sight given the 8% decline recorded by the wholesale division (due to the benefit of ladder pricing revenue recognised last year). BT’s Fixed consumer revenues, 25% of BT’s business (excluding EE and Openreach) corresponding to BT’s own retail business, were up by 8% yoy with a 20% increase in broadband and TV revenue. Openreach revenue (28% of BT’s revenue not