On Tuesday, Eltel announced a new network build-and-maintenance partnership agreement with Telenor Norway, valued at ~475 MEUR over its initial five-year term (2026–2031). Two three-year extension options that could take it to 11 years and a total value towards 1 BEUR. Eltel steps up from one of several regional suppliers to Telenor's sole nationwide contracting partner. While much of the volume is work we already assume Eltel carries in Norway, the agreement both defends that base and adds new volume as Telenor consolidates its supplier structure. In our view, the win materially reduces risk for the Norwegian unit, provides excellent long-term visibility, acts as a strong quality stamp on Eltel's delivery, and fits an emerging trend of telecom operators consolidating their contractor base. We view the agreement as clearly positive for the investment case, and we raise our estimates accordingly. However, following the strong share price increase on the news, we view the overall earnings-based valuation as neutral, leaving no clear upside at current levels. We therefore downgrade our recommendation to Reduce (was Accumulate), but increase our target price to SEK 15.40 (was SEK 13.90) on increased estimates.

Investment case relies on margin turnaround and structural demand

In our view, Eltel's investment case rests on the continuation of its profitability turnaround toward the 5% adjusted EBITA target, underpinned by structurally rising demand for power grid construction and maintenance as the Nordics electrify and reinforce their networks. Having now delivered twelve consecutive quarters of year-on-year margin improvement, Eltel is, in our view, structurally better positioned than in the past, supported by a healthier contract structure with broad indexation protection, a gradual business-mix shift toward higher-margin Emerging services (e.g. data center, solar PV), and a strengthened balance sheet. The biggest positive driver is clearly the margin trajectory, while the main near-term risk is execution, where the burden of proof remains on Eltel to demonstrate that the 5% target is achievable on management's timeline. A steady inflow of multi-year framework agreements (Telenor, Caruna, E.ON, Elisa) supports the revenue base and, in our view, de-risks that path.

We raise our estimates on new Telenor volume

While contractually a new agreement, we view this commercially as a renewal with a material step-up in scope. Since we assume Eltel already carries a relatively large share of Telenor work in Norway, the genuinely new volume is more modest than the headline suggests. Given that it phases in mainly from 2027, we leave our 2026 estimates broadly unchanged while raising 2027e and 2028e by 1-3%, with a far more visible increase at the Norway unit. On earnings, we are more measured, as we expect mobilization and start-up costs to absorb much of the near-term uplift, so the effect shows up mainly as a firmer margin trajectory rather than a step change in absolute profit. As the contract reaches full run-rate and mobilization costs fall away, we have lifted our 2028e EBITA estimates by 4%. Our longer-term view is unchanged, and we continue to see Eltel reaching ~4% adjusted EBITA in 2027 and gradually approaching the 5% target thereafter, driven by continued improvement in the classic business and a growing share of higher-margin Emerging services.

Valuation looks neutral after fierce re-rating

On our updated estimates, Eltel's 2026 earnings-based valuation looks full, with EV/EBITDA of around 7x, EV/EBIT of around 13x and P/E of around 22x, all above our acceptable ranges. We then expect earnings growth to ease the multiples to around 6x, 11x and 13x in 2027e, leaving them at the upper end of our ranges rather than the lower end. After the +18% re-rating, we believe the market has priced in much of the earnings growth we forecast, and our DCF value of SEK 15.4 sits slightly below the current share price. To be clear, this is a valuation call rather than a change of view on the company, as we regard the Telenor agreement very positively and continue to like the direction of the business. Should Eltel deliver on management's 5% adjusted EBITA margin target on its stated timeline, we believe attractive upside from current levels would remain, and we would revisit our stance if execution builds further toward that target.