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Solid Q1 across the board, acceleration in the right segments. Minor revisons on EBITDAaL, but we upgrade '26e FCF by 5%, which represents a ~9% yield and keep s us as BUYers.
Tele2 Tele2 AB Class B
Q1'24e: Muted adj. EBITDAaL growth well communicated. Eliminated overhang means limited hurdles for a re-rating where we argue 9% FCF yield in '26e is too cheap - BUY.
In an accompanying report published today we reveal details of our new annual proprietary consumer survey STAMP 2024: (I Can''t Get No) Satisfaction. In this note we focus on the key conclusions for the Nordic operators. We have seen big shifts in STAMP scores particularly for Elisa (which we double-downgrade to Underperform) and Tele2 (which we downgrade to Neutral). In a reversal from last year, Telenor is now the best-ranked Nordic telco on STAMP plus we are more positive about other parts of the business so we double upgrade it to Outperform (new TP NOK135). We leave Telia at Neutral though with a small TP increase (SEK24 to SEK27) Elisa (downgrade to -): Still a star but shining less brightly Elisa has long been a STAMP winner given its industry-leading customer perception and superior growth. However, the gap vs its Finnish peers has narrowed in this year''s survey, and we forecast a pick-up in customer churn that could lead to a moderation in revenue and EBITDA growth. We still expect it to grow faster than European peers - but by a smaller margin and by less than consensus expects (BNPPE ~2% 24-27 EBITDA CAGR vs consensus and guidance at ~3%). Telenor (upgrade to +): FCF upside from cost-cutting, capex cuts and Asian dividends Telenor''s overall STAMP has improved slightly with a better performance in Norway fixed, Sweden and Finland. This more than offsets a weaker Norway mobile score. More long term we now believe it can grow FCF faster than consensus expects and enough to cover the dividend. This is based on our view that it can cut costs in Norway, bringing down capex and increase Asian dividends. Tele2 (downgrade to =): Approaching our TP and STAMP scores heading wrong way Tele2 shares are trading close to our TP following the Iliad stake purchase. We also observe a deterioration in fixed-line customer perceptions suggesting its price hiking might be running out of road. In mobile the Comviq brand goes from strength to strength but...
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A mostly disappointing results season for the Nordic telcos The Nordic telcos are sometimes seen by investors as a safe house in an otherwise challenged European telco sector. However, the Q4 23 results season offered limited respite. We lower earnings forecasts and TPs for most of the operators after updating post results. Two themes to emerge: capex warnings and slower price hikes to drive revenue slowdown In our 2024 sector outlook we argued that the sector faced another challenging year, as revenue growth was likely to slow and that there was downside risk to FCF. We believe this was largely supported by the Nordic telco results where all four operators warned on capex. While there were varied explanations why capex in 2024 is set to rise in the region, ultimately this runs in direct contradiction to the current sector bull narrative of ''peak capex''. Revenue growth looks set to remain positive across the board but we would note that most of the Nordic telcos pointed to a lower rate of price hikes in 2024 than in 2023, which we believe supports our view that sector revenue growth is likely to roll over in 2024. There was some respite on NWC (a major point of variance for the Nordics) where the messaging was generally positive - but we see this as being of secondary importance. Changes to estimates and top picks in the region We for the most part reduce our earnings forecasts for the Nordic telcos. Elisa (+) disappointed slightly on top-line growth and capex driving a EUR1 cut in our TP (to EUR47). However, the business remains best-in-class, valuation has improved and a new CEO could drive some positive strategic moves. We slightly lower Tele2 (+) revenues and more meaningfully lower near term FCF to reflect the 2025 capex warning (leading to a SEK2 cut to our TP to SEK89). However, the longer term growth momentum appears solid. Telia (=) EBITDA trends were robust but the higher capex and interest guidance reduces our FCF forecast and we lower our...
Strong Q4 on quality items, and raised DPS. Lower '25e cash flow, but expect a sharp improvement in '26e. Tele2 remains our preferred telco - keep BUY at 8% div. yield.
Q4'23e: Swe EBITDAaL returning to growth (+1% org.). '23e DPS of SEK 6.80 on reassuring leverage and FCF outlook. Keep BUY on low-risk ~8% yield and improving cash flow in '24e-'25e.
Sweden trends remain among healthiest in Europe Q3 23 results showed an equity story back on track after last quarter''s capex warning. Underlying trends are healthy (+3% y/y org EBITDAaL growth) and our view that improving customer perceptions should drive an accelerating top-line in Sweden was finally evident. Management''s confidence on sustaining high cash returns is consistent with what we argued in our recent Nordic report (Dividends divided), which found Tele2 does not need to cut the dividend (8% divi yield). What do we know that we didn''t on Tuesday? 1) Mgmt said bigger-than-usual price hikes were accompanied by lower-than-expected churn impacts. 2) FCF was boosted by low capex paid and +SEK0.2bn NWC effects. This will to some extent revert in Q4 23 (with NWC to revert by ''a couple hundred million'') but the dividend nonetheless appears covered (we expect FCF and dividend of SEK4.7bn in 23 with FCF growing to SEK5.3bn in 24). 3) Q4 23 EBITDAaL is set to see a small energy headwind (~SEK10-20m, depending on where spot rates land) but lower drag from content costs plus further price hike in Sweden. Tele2 expects growing EBITDAaL in Q4 23. 4) The recent spectrum auction delivered an outcome in line with what the company was expecting, suggesting no further revisions to last quarter''s capex guide. Has the investment thesis changed? No - this quarter showed our thesis starting to play out We upgraded Tele2 earlier this year on the back of our STAMP survey that found improving customer perceptions, which we argued could help accelerate the top line. But we had been disappointed that in recent quarters the focus had instead been on capex (in part phasing-related) and various cash flow headwinds. This quarter was the first quarter for some time where the improving underlying trends were evident, most notably with management''s comments that it had seen lower-than-expected churn despite better than expected price hikes. Changes to estimates We...
Q3: und. EBITDAaL growth improvement and strong cash flow. We tweak und. EBITDAaL by +1%, '24e-'25e EFCF up 3-2%. Keep BUY on 8% div. yield - SEK 6.80 in DPS should hold.
The stock is up by 2% this morning after the release of the Q3 numbers which were broadly in line with expectations. The transformation program aiming to deliver mid-single digit EBITDA growth from 2024 did however begin to bear fruit in Q3. We believe that this is an opportunity to buy the stock given the comfortable and reassuring position of the group in Sweden and the dividend yield of 8.25%.
Q3'23: Sweden EBITDAaL growth to improve q-o-q. EFCF to grow 11-7% in '24e-'25e after capex peaking in '23e. Change of analyst – we upgrade to BUY, TP SEK 100 (80).
Nordic telco fortunes varied widely over Q2 results, so here we look at key takeaways and how our investment cases have evolved, particularly regarding leverage and cash returns. We now expect a dividend cut at Underperform rated Telia and continue to forecast a cut at Telenor. We explore Tele2''s capex warning to see what was due to phasing and what was more permanent and conclude the dividend can still be sustained. In contrast to peers, Elisa''s dividend is secure and the recent pull back in the stock is a rare opportunity to enter one of the sector''s few genuinely high-quality names. The persistent - Tele2 (+): Capex warning limits upside but we believe no need for a divi cut Robust operational outlook (underpinned by scoring highly in STAMP) should drive solid EBITDA growth (FY24 BNPPE +5% vs. cons +4%) and allow natural deleveraging. Phasing of 5G rollout should allow capex to come down from 2025 as guided for. We cut our TP from SEK 115 to SEK90. The headache - Telia (-): We cut div forecast for next 3 yrs on FCF and leverage concerns We forecast leverage remaining above the upper limit of target by 2025 and the recent departure of a well-liked CEO increases risk of a reset. We now model a 25% dividend cut in FY23, which would maintain leverage c.2.4x in medium term and cut TP from SEK25 to SEK20 on higher debt and lower EBITDA forecasts (broadly stable in 2024, -6% below cons). The wild - Telenor (-): Divi still uncovered by 2025 and we continue to model c.40% div cut Nordic growth accelerated in 2Q but Norway lagged, with service revenue growth modest considering recent price action. We believe the medium-term risks to Norway from Ice/Altibox are still underestimated by consensus, and we see continued regulatory and political risk in Asian portfolio leading us to be more cautious on forecast FCF (30% below cons on FY25 simplified FCF). The steady - Elisa (+): We see recent de-rating as a rare buying opportunity with div...
Q2 EBITDA in line but Sweden declined by 5% y-o-y. FY'23 outlook with sharp upgrade to '23-'24 capex guidance. Dividend cover under pressure. TP to SEK 80 (100): SELL (Hold).
The stock is down by 7.5% this morning after the release of Q2 numbers globally in line with those of the Q1 and a slight increase in the revenue growth guidance. But the CEO told us that, between the lines, the dividend won’t increase in 2023 (and probably also in 2024). We nonetheless believe that this is an opportunity to buy the stock given the comfortable and reassuring position of the group in Sweden and the dividend yield of 7.6% (8.3% after this morning’s share price fall).
Q2'23 results 18 July: Sweden improving slightly. Energy and content costs still weighing on EBITDA. Q2 unlikely to change market view; we remain at HOLD.
A slower start to the year but EBITDA growth still expected to pick up in 2H Swedish EBITDA was impacted by higher Viaplay content costs but management are confident that growth will pick up once these lap in 3Q. Growth momentum in Sweden B2C is a focus and the company plans to improve this through price rises and strategies to reduce churn, including the reintroduction of handset binding later this year. In the overall Swedish market they are seeing some signs of an increasing focus on value, which should be taken as encouraging for the overall market. What do we know now that we didn''t last week? Net working capital inflected positive in 1Q and management expect continued improvement in FY23. The FCF miss was instead driven by higher capex and the company reiterated that capex is expected to come in towards the top of the range for 2023 and mid-term. Management indicated that there could be benefits to going slightly above the upper end of the range but stressed that this would only be on the back of solid EBITDA growth which they cited as c.3-5%. We note Tele2''s cable network in Sweden is already predominantly FTTB. The upgrade to remote PHY (bringing fibre closer to the end user) has already been ongoing for several years and represents 10% of the total capex spend, therefore we do not believe this would be the focus for any additional spend. Has the investment case changed? No In upgrading Tele2 to Outperform last month (Knowing Me, Knowing You) we cited evidence from our STAMP survey showing that Tele2''s positioning in Sweden has materially strengthened, particularly in broadband. We believe improved scope for top-line momentum and easing cost pressures will be able to sustain EBITDA growth ahead of Telia and peers and we include it as one of our ''All-Star'' top picks in the sector (see The 1, 3 and 5-Year View: A shock to the system). Changes in estimates - TP of SEK115 unchanged and we remain Outperform We have updated for 1Q results and...
Swedish revenues were rather disappointing coming in almost flat yoy while the Swedish EBITDA was down by 2.5% yoy as Tele2’s transformation program is not yet bearing fruit. Capex should also grow by 3-4% in 2023 and therefore the dividend could remain unchanged next year. However, given the comfortable and reassuring position of the group in Sweden, Tele2 deserves to offer only a small discount compared to the best-in-class dividend yield and therefore we maintain our Buy.
In an accompanying report published today we reveal details of our new annual proprietary consumer survey STAMP 2023: The Price of Everything. In this note we focus on the key conclusions for Sweden where Tele2 is the standout winner in both broadband and mobile. We upgrade Tele2 to Outperform with an increased price target of SEK115 (from SEK93). Conversely, we see Telia as comparatively weaker and reiterate our Underperform rating with TP of SEK24 (from SEK25). Our 2023 STAMP survey suggests Tele2 is very well positioned to grow in Sweden Tele2 is extremely strong in Swedish broadband, having gained absolute pricing power and substantially improved NPS. Mobile improvements are less pronounced but Tele2 screens well relative to Telia and other Swedish operators - Tele2 main brand is superior vs. Telia/ Telenor on brand perception, pricing power and NPS, whilst Comviq appears well positioned to benefit from a deterioration at Telia''s discount brand Halebop. We increase Tele2 service revenue estimates, now forecasting c.4% growth in 2023 (up from 2%) and cut Telia service revenue estimates by c.1% Rates exposure still a headwind for Tele2 but risk has moderated In downgrading Tele2 to Neutral last year (Scaling a Mountain of Debt) we cited the company''s greater exposure to higher rates given their re-leveraging model to pay sizeable dividends. Whilst the risk is still present there are signs it is moderating. We believe top-line momentum and easing incremental cost pressures will be able to sustain EBITDA growth which we forecast at c.3-4% in the medium term, ahead of peers and Telia which we forecast at broadly flat to +1% medium term. We upgrade Tele2 to O/P with TP of SEK115, reiterate U/P Telia with TP SEK24 With evidence that Tele2''s positioning in Sweden has strengthened we increase estimates and see scope for consensus upgrades (c.3% ahead of cons FCFE by 2024). Despite significantly higher ROCE, Tele2 trades at a discount to Telia...
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Guidance and FCFE disappoint, no clear catalysts for 2023 Guidance of 2023 low-single digit EBITDA growth came in notably below consensus expectations of c.4%, whilst a reiteration of mid-term guidance of mid-single digit EBITDA growth appears to imply a tailwind in energy costs from 2024 where there still remains some uncertainty. For 2023, Tele2 is c.50% hedged on energy costs in Sweden and they expect costs to start to come down in 2H. Turning to working capital, a large negative contribution to FCFE in 4Q was partly driven by a temporary suspension of handset financing whilst renegotiations were ongoing, in addition to higher capex and inventory levels. The company expects a gradual recovery towards normalised working capital levels during 2023 (more likely in 2H than 1H) although we note ongoing wider working capital headwinds persist across the sector and believe this is difficult to forecast. What do we know that we didn''t on Monday? Tele2 believes that inflationary pressures are affecting consumer sentiment in Sweden, particularly in mobile, and in contrast to comments from Telia last week. Tele2 is seeing lower handset sales and an increase in consumer price sensitivity to promotions, leading to higher churn in the market. We recently outlined how the outlook for the Swedish market appears to be weakening (see Trends Tracker 4Q22) and that Swedish ''core'' pricing was deflationary in 4Q for the first time since 2020. Has the investment case changed? No Tele2 has historically traded on a levered equity model which delivered outsized returns through special dividends driven by asset sales and merger synergies. The focus has now shifted to execution, and with guidance for limited EBITDA growth the story becomes less well defined. Whilst there is room on the balance sheet to re-leverage, we believe the company is likely to be conservative in its approach to shareholder remuneration in the current environment. Changes in estimates - we...
Q4 numbers were in line with our expectations, while the dividend could have been increased a little bit more than the 1% eventually announced by the group. Given the comfortable and reassuring position of the group in Sweden (but with low single-digit growth in service revenue for 2023), Tele2 deserves to offer a moderate discount compared to the best-in-class. The stock is currently offering a high dividend yield of 7.25% and therefore we maintain our opinion at Buy.
Higher energy costs drive down EBITDA expectations for the year Tele2 downgraded guidance to ''the low end of the range which would be expected for mid-single digit growth''. Management declined to put a precise figure on this range, but with consensus anticipating c.5% y/y we believe there is downside to expectations into the end of the year, and we now forecast c.3.5% growth. With the company hedging energy on a 3-year basis in Sweden and the inflation time lag on wage increases we don''t expect the headwind to EBITDA to moderate any time soon. There is however scope for price adjustments to moderate some of the higher costs, and management plan to address price adjustments on fixed connectivity early next year. Tele2 have also seen encouraging early demand for their new speed based tariffs - the focus appears to be on upsell from the rest of the base, and as demonstrated by the success of unlimited plans in Finland in recent years we expect the premium price for faster speeds could support further ARPU increase in the medium term. What do we know that we didn''t last week? FCF concern continues and in 3Q was down c.30% y/y. This was predominantly driven by negative working capital with the company citing the reversal of the tailwind on handset financing and a desire to hold higher inventory levels - management therefore expect working capital to moderate in 4Q. Has the investment case changed? No Tele2 has historically relied on EBITDA growth to re-lever and pay out dividends, but this growth is proving more elusive in the current inflationary environment. We also see continued risk of overhang from Kinnevik in the near to mid-term, combined with risk from Tele2''s higher exposure to rising interest rates (see Scaling a Mountain of Debt). However, if growth in Sweden and the Baltics can be sustained we see reasonable upside in the medium to longer term. Changes in estimates - we remain Neutral with TP of SEK96 We have updated our forecasts for...
Q3 revenues were up by 6% yoy and lfl, which was slightly better than expected, while EBITDA was more in line with expectations, up by only 2% yoy due to the rise in energy prices. Given the comfortable and reassuring position of the group in Sweden, Tele2 deserves to offer a best-in-class dividend yield. The stock is currently offering a dividend yield of 7.5% and we maintain our opinion at Buy.
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