Bredband2 had a good ending to 2021. While Q4 sales of SEK 376m were -1% below our forecast, the gross margin was impressive at 36.8%, up 4.2pp y-o-y and 0.9pp q-o-q. The improvement stemmed from: 1) price hikes in Q4, 2) fewer margin-dilutive revenue streams (A3-related) and 3) changes in marketing campaigns (lower customer discounts). On top of the strong gross margin, adj. opex was flat q-o-q (versus the avg. historical sequential seasonal growth of ~10% q-o-q), driven by synergies reaped with A3. In total, this led to adj. EBITDA of SEK 62m, coming in 7% above our forecast of SEK 58m. Although the customer intake was -2,400 q-o-q, the negative number was no surprise due to the company’s decision to migrate A3’s brand into BRE2’s brand. We expect this to revert into positive territory in the coming quarters.
We raise our gross margin assumptions for ‘22e-‘23e
Although we estimate a sequential lower gross margin in Q1 as TH1NG’s customers are consolidated, we see the current gross margins as sustainable when looking at 2022e excluding TH1NG. Here, we think that the company will be able to gradually improve TH1NG’s margins (as it has done with A3), driving them to group levels from Q3’22e. While we reduce ’22e-‘23e sales by 1% following the Q4 sales miss, we hike our gross margin estimates, leading to +2% on ‘22e-‘23e EBITDA.
5% organic growth in ‘22e, up from 3% in ‘21
We continue to expect increased marketing activities in 2022e, fuelling 5% organic growth (up from 3% in 2021). Given the company’s scalable business model, we expect this to render an adj. EBITDA margin of 16.9% (14.7% in 2021). On our new estimates, Bredband2 is trading at 8x ‘22e EV/EBITDA, coupled with 7% lease adj. FCF yield.
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