Sales and EBITA are expected to grow towards the end of the year
Eltel’s business is subject to seasonality and Q1 is typically a weaker quarter. Net sales and profitability are expected to increase towards the end of the year and according to management, the order backlog looks good, especially in Finland and Norway. Based on the report, we have cut our net sales estimate for 2021E from EUR 916.8m to EUR 890.6m. We see the targeted growth rate of 2-4% in the Nordics achievable from 2022 onwards. In 2022-23E, we forecast net sales to grow by 1.7% and 2.0%. Currently, the focus is on profitability and Eltel has managed to increase its operative EBITA (y/y) for five consecutive quarters. We expect Eltel to continue its efforts to improve operational efficiency and in line with the guidance, we forecast operative EBITA margin to grow from 1.2% in 2020 to 2.4% (prev. 2.6%) in 2021E.
BUY with a target price of SEK 29.5 (30)
Despite lower-than-expected Q1 results, there have been no changes in the big picture. Eltel has continued its transformation journey with a focus on improving operational efficiency, profitability, financial position, and restructuring of non-performing businesses, which will be negatively reflected in this year’s sales. On our updated estimates for 2022-23E, Eltel is trading at EV/EBITDA of 7.9x and 7.0x, which translate into discount of 4-10% to our peer group median. On our revised estimates, we adjust our target price to SEK 29.5 (30) and retain our BUY-rating, which still values Eltel slightly below peers, reflecting Eltel’s lower profitability profile and as we look for more signs of further transformation progress.
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