Q1 was a disappointment and worse than we had feared. A combination of high sick leave, a harsh winter and cost inflation took its toll on profitability. All Nordic countries saw decreasing margins y-o-y, even Finland if adjusted for a positive one-off relating to annual bonus payments received from pension insurance companies, which usually occurs in Q2. All in all, operative EBITA was EUR -2.4m, corresponding to a margin of -1.3% vs. ABGSCe at 0.2%, down 0.9pp y-o-y despite flat volumes y-o-y. According to management, sick leave peaked in February whereas cost inflation accelerated in March. Eltel is in discussions with customers to seek compensation for increased costs, and management says that it has had some positive initial discussions but sees a risk that the overall impact of inflation will remain negative for FY’22. Consequently, management cancelled its previous guidance for an improved margin in ‘22 compared to 1.8% in ’21. During the conference call, management was asked if it expects a positive operative EBITA margin in ’22, but no clear answer was given. Management also extended the long-term financial targets for operative EBITA margin and leverage until ’25, from previously ‘23.
‘22e-‘24e adj. EBITA down 33-23%
We cut our ‘22e-‘24e adj. EBITA estimates by 33-23% (-14% from est. miss in Q1, -17% from lower margin assumptions for Q2-Q4, and -2% from FX). Although high sick leave and unfavourable weather should be isolated to Q1, we expect cost inflation to remain a challenge despite mitigating measures. We now assume a FY’22e adj. EBITA margin of 1.6% vs. 1.8% in ’21 (1.5% if adjusting for positive one-off in Q4’21 relating to a real estate sale in Poland, which Eltel includes in its reported operative EBITA). We acknowledge the low estimate visibility given the cancellation of guidance
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