Eltel extensive report: The turnaround story strengthens

Eltel has continued its gradual turnaround journey, showing tangible profitability improvements while maintaining a strong position in core markets and expanding into new market segments. After years of restructuring and heavy margin pressure, the company is now more streamlined, operationally disciplined, and increasingly exposed to growth areas such as renewable energy, e-Mobility, and data centers. While the turnaround is still ongoing, recent progress supports improved visibility on stable cash flows and margin recovery. We reiterate our target price of SEK 9.70 but raise our recommendation to Accumulate (was Reduce), as we see recent share price weakness improving the risk/reward ratio.

Refining the core while expanding into growth markets

Eltel is a leading Nordic service provider for critical power and communication networks, operating mainly through long-term framework agreements with large utilities, telecom operators, and network owners. Its core offering spans design, construction, upgrades, and maintenance of electricity and telecom networks, with business organized through country units in Finland, Sweden, Norway, Denmark & Germany, as well as operations in Lithuania. The company has deliberately reduced its exposure to risky, fixed-price projects, and divested non-core businesses such as High Voltage Poland, to focus on profitable growth in its core geographies. Alongside its traditional “classic” businesses, Eltel is increasingly active in “new” growth segments, including solar parks, battery energy storage (BESS), E-mobility, and data centers.

Structural growth driven by electrification and digitalization

Eltel’s operating environment continues to be shaped by the twin drivers of digitalization and electrification. In Communication, fiber and 5G investments have slowed from rollout peaks, but demand is shifting towards densification, indoor networks, and critical public infrastructure. In Power, the investment outlook remains strong, underpinned by aging grids, renewable integration, and electrification of transport and industry. Eltel’s core markets, however, remain highly competitive and commoditized, limiting pricing power and margins. To counter this, Eltel has been actively broadening its customer base and expanding into new segments with stronger growth outlooks and higher margin potential, such as renewable energy and data centers.

Margin recovery is gaining more and more traction

Eltel’s reported revenue growth has been modest in recent years (3Y CAGR: 0.7%), constrained by both internal and external factors. Since its strategy update (Q1'23), the company has increasingly prioritized profitability over top-line growth, focusing on improved commercial terms, project selectiveness, and operational efficiency. Divestments, currency headwinds, and slower customer decision processes have also weighed on growth. That said, we believe the strategy implementation has been paying off, with profitability steadily improving, primarily supported by expanding gross margins, and earnings are becoming more resilient. We believe Eltel has now established a firmer ground to sustain this positive trend, although it is still premature to completely dismiss its volatile track record in earnings. Combined with organic revenue growth expected in the low- to mid-single digits, we forecast robust earnings growth in the coming years (EBIT CAGR 25-27’: 43%)

Time to be optimistic about the stock again

While Eltel’s valuation level is high for the current year (EV/EBIT: 12x, P/E 17x), we believe the company’s improving profitability and deleveraging progress warrant a more positive view on its turnaround, while also supporting looking beyond just the current year. Reflecting on this, we feel that the overall earnings-based valuation for 2026 looks relatively neutral, albeit on the lower side (EV/EBITDA 4x, EV/EBIT 9x, P/E 9x), given our acceptable valuation range (EV/EBITDA 5x-7x, EV/EBIT 8x-11x, P/E 9x-13x). If profitability improvements continue as expected, we anticipate that valuation multiples will continue to moderate in the coming years. Our DCF model also supports our view on the valuation, indicating a value per share of SEK 10.0. Overall, we think the risk-adjusted expected return is good at the current share price level.