Eltel's Q3 report was mixed relative to our expectations. Sales fell more than we had expected, as lower fiber rollout volumes in Finland and completed Smart meter projects in Sweden weighed on the top line. Profitability, however, improved once again, reaching its highest level since 2015, extending the streak to thirteen consecutive quarters of year-on-year margin gains. The quarter’s main highlight was a record volume of new long-term contracts, led by the large Telenor agreement in Norway. Together with the Vattenfall agreement signed in October, these give good visibility into revenue from 2027 onward. Management reiterated its confidence in reaching the 5% adjusted EBITA margin target within the previously stated timeframe, but we continue to believe the burden of proof rests with Eltel to demonstrate the 5% target is achievable on management's timeline, especially as starting up the new contracts will bring extra costs in 2027. We lower our revenue estimates by 3-4% and our adjusted EBITA estimates by 2-3%. However, following the share price decline on the report day, we reiterate our Accumulate recommendation with a slightly lowered target price of SEK 18.3 (was SEK 18.5).

Weaker sales, but higher margins and a record order book

Eltel's revenue declined by ~6% to 196 MEUR, clearly below our estimate of 212 MEUR. In Finland, the large fiber-to-the-home rollout of recent years is winding down, and in Sweden large Smart meter projects have been completed, while the new contracts will only start to contribute next year. Despite the lower sales, profitability improved, with adjusted EBITA rising to 11 MEUR (Q3'25: 9.1 MEUR), and the margin climbed to 5.6% (4.3%). In our view, this shows that the improvements are lasting rather than one-offs. Contracts are better protected against cost inflation, operations have become more efficient, and Eltel has been quick to adjust its cost base when volumes fall. Finland, for example, lifted its margin above 10% even though its sales fell by 9%. At the same time, the record order book of ~1.7 BEUR means that a large part of Eltel's revenue for the coming years is already secured, with volumes from the new contracts expected to ramp up from early 2027 and be fully visible from Q3'27. The next tests are therefore how smoothly Eltel can start up its new contracts, and whether Denmark can return to acceptable profitability.

Lower revenue base, margin path intact

Following the report, we lower our 2026-28e revenue estimates by 3-4%, while the cuts to our adjusted EBITA estimates are smaller at 2-3%, as higher margin assumptions in Finland, Sweden and Norway partly offset the lower volumes. The cuts reflect a lower starting point for the existing business rather than any change in our view of the new contracts. Following our estimate revisions, we now expect adjusted EBITA margins of 3.7%/4.1%/4.6% (was 3.6%/4.0%/ 4.5%). At the country-unit level, we pull forward the Telenor ramp-up in Norway but clearly cut our Denmark & Germany estimates, where we currently see no evidence of a margin recovery. Our 2026e EPS rises due to a one-off tax income in Q3, while our 2027–28e EPS estimates fall by ~3%.

Risk/reward remains favorable after the share price decline

On our updated estimates, Eltel's 2026e earnings-based multiples remain elevated (EV/EBITDA ~7x, EV/EBIT ~13x, adj. P/E ~17x), and the 2027e multiples (~6x, ~11x, ~14x) sit around the upper end of our acceptable ranges. However, as 2026 draws to a close and the new contracts mainly lift our 2028 estimates, we continue to give 2028 increasing weight in our assessment, where the valuation looks attractive (~5x, ~8x, ~10x). With thirteen consecutive quarters of year-on-year margin improvement now behind it, a structurally more resilient business and a significantly strengthened contract base, we remain comfortable placing meaningful weight on forward-looking valuation. Our DCF model indicates a value per share of SEK 18.3, in line with our target price. Our estimates also remain below management's 5% margin target, which in our view offers further upside should the turnaround continue as planned. Overall, following the share price decline on the report day, we continue to see the risk-adjusted expected return as attractive.