This content is only available within our institutional offering.
28 Oct 2022
(Guidance) Slipping though my fingers
Sign in
This content is only available to commercial clients. Sign in if you have access or contact support@research-tree.com to set up a commercial account
This content is only available to commercial clients. Sign in if you have access or contact support@research-tree.com to set up a commercial account
(Guidance) Slipping though my fingers
- Published:
28 Oct 2022 -
Author:
Paramaguru Kohulan KP | Schild Francesca FS -
Pages:
7
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...