Eltel Q2’25 preview: Margin expansion expected to continue

Eltel is set to release its Q2 earnings report on Thursday, July 24, at 08:00 am CET. With diminishing effects of the divestment of the company’s Polish business last year (divested in June, 2024), we expect modest top-line growth alongside an improved EBITA margin, driven by overall cost efficiencies and a strengthening gross margin. As always, management’s comments on market outlook and strategy execution will be key focal points in the report.

Sweden and Finland are expected to lead the growth

We forecast Eltel’s Q2 reported revenue to be 218 MEUR, reflecting a 1% increase year-on-year (Q2’24: 216 MEUR). The divestment of the high-voltage business in Poland will continue to negatively impact the Group’s revenue growth, but to a smaller extent than previous quarters, as it only contributed to the financials during two months in the comparable period.

On a country-unit level, we expect Finland and Sweden to pose the strongest year-on-year growth (9% and 6%, respectively), while we expect growth in the newly formed segment Denmark & Germany to showcase flattish growth (1%), due to a tougher comparable period. Revenue in Norway is estimated to decline by about -10% year-on-year, reflecting the ongoing transition to broadening the customer base and declining volumes within traditional telecommunication. The strong revenue growth in Finland and Sweden is expected to be driven by, on the one hand, the Power segment (primarily through the Taaleri Energia project), and, on the other hand, continued good demand in e.g. public infra. Additionally, we note that FX changes could provide tailwinds to reported growth, especially within the Swedish country-unit following the year-on-year appreciation of the Swedish Krona.

Good strategy execution is expected to continue to improve profitability

We expect Eltel’s strategy execution to yield continued improved margins, and we estimate adjusted EBITA at 4.5 MEUR (Q2’24: 0.5 MEUR), reflecting a notable year-on-year improvement. This is expected to be supported by incremental efficiency gains across country-units, driven by earlier restructuring efforts, as well as improved gross margins in new project deliveries. Naturally, the divestment of the unprofitable high-voltage business in Poland will also support margin improvements. In Norway, notable margin improvements are expected to catch up from Q3 and onwards, with only minor improvements anticipated for Q2, as a result of previous restructuring and cost-reduction initiatives. At the bottom of the P&L, we forecast financial expenses to be at the normal level (incl. interest payments on the hybrid bond) and taxes to be at a modest level. Reflecting this overall picture, we expect the reported EPS to be at EUR 0.00 (adjusted for interest on hybrid bond). Going forward, following the bond issue of 130 MEUR (read our comment here), there will be a modest net increase in debt on the balance sheet, which we expect will increase financial expenses slightly. However, we believe the lower cost of capital and the removal of hybrid bonds will be earnings-accretive over time and will have a positive impact on our EPS estimates.

Market outlook remains in focus

Since Eltel does not issue numerical Group guidance, our attention remains on qualitative signals regarding the market outlook across its country units. Finland is set to spearhead growth in 2025, underpinned by the major solar power park order. Additional momentum is expected from continued progress in public infrastructure projects, robust demand within the Power segment, and expansion into new and adjacent markets, as e.g. illustrated by the recent data center contract with Hyperco. Combined with ongoing operational efficiency improvements, we forecast 2025 revenue to reach 863 MEUR, representing a +4% y/y growth, and an EBITA of 27 MEUR (3.1% margin). While Norway remains a drag due to persistent underperformance, we expect a gradual recovery during H2’25 as implemented cost measures gain traction.

The key near-term risk to our estimates, as we see it, lies in a potential deterioration of the macroeconomic backdrop amid global trade disruptions or heightened geopolitical tensions. That said, the global economy has so far demonstrated a degree of resilience. Moreover, Eltel’s Nordic-centric footprint (93% of FY24 revenue) and the fact that most tier-1 suppliers are European, should provide solid protection for its operations. Looking further ahead, structural trends such as electrification and digitalisation are likely to drive substantial infrastructure investments, which are factors we believe support Eltel’s long-term growth trajectory.