Telia Q4'24: We forecast best earnings growth in years

Translation: Original published in Finnish on 1/31/2025 at 9:05 am EET.

We reiterate our SEK 32 target price and Reduce recommendation for Telia’s share. Overall, Telia's Q4 report was slightly weaker than we expected. However, the company is confident about the current year, and we have left our forecasts broadly unchanged. We expect the company to grow in line with guidance, which is a good level by historical standards. However, the somewhat volatile development of revenue and the historical disappointments regarding the impact of efficiency measures continue to keep us on our toes. The valuation picture of the stock (2025e P/E and EV/EBIT 15x) remains neutral given the already tight earnings growth expectations. 

Q4 results missed expectations, but dividend proposal was expected

Telia reported Q4 revenue up 3% to 23,497 MSEK, in line with our expectations. Adjusted EBITDA increased by 5% to 7,870 MSEK and was slightly below our expectations. In the lower rows, depreciation and financing costs were both around 0.9 BNSEK higher than expected. As a result, EPS from continuing operations were -0.13, well below our expectations and those of the market. The structural cash flow for 2024 was 7.5 BNSEK and in line with the original guidance of 7-8 BNSEK. As expected, Telia's Board of Directors proposed to pay a dividend of SEK 2 per share for 2024. Therefore, as expected, cash flow is not quite enough to cover the dividend this year. However, the company expects future cash flow to cover this minimum dividend of SEK 2.0 and it to increase in the future.

Ongoing divestment of non-strategic operations

Telia has been selling its Eurasian businesses since the mid-2010s. In 2020, it sold, among other things, its masts, its Danish business, its copper network properties in Q4'24 and its 10% stake in the Marshall Group in Q1'25 (1.2 BNSEK), which together represent a balance sheet value of 37 BNSEK after 2020. In other words, the process has been going on for a long time, and the company will continue to divest various non-strategic activities, such as copper-related properties in Sweden. Divestments obviously strengthen the balance sheet, and the company has indicated that it may pay additional dividends as the balance sheet permits. The company's net debt/EBITDA ratio was 2.3x at the end of the fourth quarter, within the target range of 2-2.5x. Therefore, the time for additional dividends is probably not yet. In addition, cash flow must first be brought to a sustainable level of at least 8 BNSEK to cover the minimum dividend.

2025 guidance was known and indicates good growth

In 2025, the company expects comparable service revenue growth of 2%, comparable EBITDA growth of at least 5% (H1'25 below 2% and H2 above), capital expenditure below 14 BNSEK and free cash flow of approximately 8 BNSEK. We believe that the guidance for this year and next year is realistic and in line with our forecasts (revenue +2% and EBITDA +6%). Revenue growth will be supported by an increase in services revenues, while profitability will be driven by the significant cost savings of 2.6 BNSEK in Q4. In our view, it is now important for the company to continue to grow earnings and further improve cash flow in order to restore confidence in its sustainable business and reduce risk levels.

Valuation still argues for caution

We forecast Telia's adjusted P/E and EV/EBIT multiples for 2025e to be 15x and 15x. The multiples are just under 10% below the Nordic peers and slightly above the overall peer group. In absolute and relative terms, we believe the valuation is even cautiously attractive, but given the improved earnings level in this year's forecasts, the numerous disappointments in the past, and the level of risk associated with earnings growth in the coming years, the overall picture is neutral. The dividend yield (6%) partially limits the stock's downside, but it is not sustainable and thus does not act as a safety cushion. A positive view on Telia would require better evidence of sustained performance growth without further setbacks.