We reiterate our Reduce recommendation and SEK 7.20 target price for Eltel. The company’s Q3 report was well in line with our expectations and reflects the continued gradual improvement of the company. We made only minor estimate revisions at Group level after the report, and we expect the company’s profitability turnaround to continue in the coming years. However, we see this as priced in at the current stock price and thus the expected risk-adjusted return as weak for the next 12 months.

Q3 was well in line with our estimates at Group level

In Q3, the Group’s decreased by 1% to 210 MEUR, which was well in line with our forecast. At country unit level, the quickest growth was in Sweden with 22%, which also clearly exceeded our estimates (est. +2%). Respectively, Finland’s growth was broadly in line with our estimates, while Denmark’s and Norway’s development was significantly slower than we expected. The Group’s EBITA increased from the comparison period and landed at 8.2 MEUR, corresponding to an EBITA margin of 3.9%, both slightly exceeding our estimates. The positive development was driven especially by Finland and Sweden compared to our estimates, as both country units were able to raise their margins clearly. On the negative side was Norway, as the country unit’s profitability ended up in the red, following the trend of the previous quarters. Due to the negative development, Eltel has implemented a restructuring program in Norway and in relation to that has booked 3.8 MEUR restructuring charges (one-time item), which affect the reported numbers. On the lower lines of the P&L, all the cost lines were higher than we expected and therefore, reported EPS landed at -0.01 EUR compared to our forecast of 0.02 EUR.

Estimate changes remained small at Group level

According to our assessment, there were no major changes in the outlook, as the demand situation is currently quite mixed across countries and different service areas. According to our understanding, the demand situation is currently at least decent everywhere else than in Norway, where in our no short-term help is in sight. Reflecting the report and the comments, we have raised the estimates for Finland and Sweden but the estimates of the other country units somewhat (especially Norway’s). However, on a Group level, our estimates stayed almost intact. Respectively, our EBITA estimates for coming years remained almost unchanged after the revisions. Therefore, we still expect the company’s profitability to increase gradually in the coming years through its strategic initiatives. We have gone through our coming years’ estimates in more detail in our Initiation of coverage report.

Short-term earnings-based valuation is still challenging

Based on our updated estimates, we believe that the overall earnings-based valuation is challenging for this year (adj. EV/EBITDA 6x, EV/EBIT 25x, P/E neg.). In contrast, we argue that next year’s overall earnings-based valuation will be more in neutral territory, at least when it comes to EV-based multiples (EV/EBITDA 5x, EV/EBIT 12x, P/E 47x). However, if the development continues on the path we expect, we believe there could be some upside in the 2026 multiples (EV/EBITDA 4x, EV/EBIT 9x, P/E 10x) with profitability improvement remaining intact. Due to Eltel’s volatile track record, however, it is hard to rely too much on this at this stage. Reflecting this overall picture, we see the risk-adjusted expected return on the share to be below the cost of equity we use over the next 12 months.