Eltel |

A leading Nordic field service provider for critical power and communication networks

| Sweden

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Financial overview

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Eltel - Not improving quite that fast

04.11.2021 | Company update

Eltel’s long-term earnings growth continues, however we make big cuts to our estimates following the Q3 report as the pace doesn’t seem nearly as quick as we had estimated. Our TP is now SEK 17.0 (29.5) and new rating HOLD (BUY).

The Q3 report produced mostly negative surprises

Eltel Q3 revenue fell 14% y/y and was EUR 194m vs the EUR 224m/214m Evli/cons. estimates. The top line miss stemmed from all the reporting units and caused margin pressure, resulting in a EUR 4.0m EBIT vs the EUR 9.0m/8.3m Evli/cons. estimates. The 80bps y/y decline in operative EBITA margin was also due to challenges in the Polish High Voltage business and cost inflation as steel prices have doubled. The cost increases had a negative EUR 2m effect on Polish profitability. Low Danish customer volumes hit local profitability, while Norwegian EBITA margin remained good. Another positive was the narrowing of losses in Sweden, and Finland reached a strong result despite cost inflation (seen especially in Power while not in Communication).

Earnings growth continues, but not as quick as estimated

Eltel remains set for long-term earnings growth, however the gradient now seems to be much less steep than we had estimated before. We cut our Q4 EBITA estimate from EUR 8.3m to EUR 4.8m. We revise the following years’ EBITA estimates down by some EUR 7-8m. In our view Eltel is set to reach above 2% EBITA margins going forward, but we revise our FY ’22 estimate down to 2.6% from 3.3%. We expect soft development for Denmark until next year; we see the Norwegian situation a bit better as the local fiber market should bounce back. We expect Sweden to break even soon enough, while Finland should continue to perform strong (street lighting being one area of interest). There’s no fixed timeframe for the possible Polish exit and so any decision will likely have to wait until next year.

Improving performance seems to be fully valued for now

We cut our TP to SEK 17.0 (29.5) as earnings improvement continues to materialize at a slower pace than we had estimated prior to the Q3 report. Margin improvement potential should remain solid as Eltel’s margins are still considerably below those of peers. Multiples are lower than peers’ in terms of EV/EBITDA (7x on our FY ’22 estimate) and higher in terms of EV/EBIT (around 18x). Our rating is now HOLD (BUY).

Eltel - Earnings miss estimates

03.11.2021 | Earnings Flash

Eltel’s Q3 results were burdened by lower top line, continued challenges in the Polish High Voltage business and cost inflation. Operative EBITA declined y/y while our and consensus estimates expected improvement. Eltel retains its FY ‘21 guidance and expects operative EBITA margin to improve y/y.

  • Eltel Q3 revenue declined by 14% y/y and was EUR 193.8m, compared to the EUR 223.9m/214.0m Evli/consensus estimates. Finland amounted to EUR 77.9m vs our EUR 86.3m estimate. Softness in volumes, relative to estimates, was seen across the board.
  • EBITDA came in at EUR 11.9m vs the EUR 17.6m/16.5m Evli/consensus estimates. Operative EBITA was EUR 4.1m, compared to our EUR 9.2m estimate, meaning operative EBITA margin was 2.1% vs our 4.1% estimate. EBIT was EUR 4.0m vs the EUR 9.0m/8.3m Evli/consensus estimates.
  • Finnish profitability remained at a strong level and increased y/y from EUR 4.3m operative EBITA to EUR 4.8m (6.2% margin). The loss in Sweden also declined from EUR -0.8m to EUR -0.2m. Meanwhile operative EBITA levels in both Norway and Denmark declined by around EUR 1m as the areas had challenges with volumes. Losses in other businesses grew by more than EUR 1m y/y. Group function costs also increased by EUR 0.4m y/y.
  • The Polish operation has cost Eltel EUR 7.6m in operative EBITA this year and Eltel re-evaluates strategic options for the business.
  • Eltel guides FY ’21 operative EBITA margin to improve y/y (unchanged).

Eltel - Long-term margin potential

28.07.2021 | Company update

Eltel’s margins continued to gain in Q2 y/y. The report had no big surprises; Eltel makes progress according to plan. We make some downward revisions to our revenue estimates while we are a bit more positive on margins.

The 2.1% operative EBITA margin met our estimate

Q2 revenue declined by 14% y/y to EUR 210m, vs the EUR 228m/223m Evli/cons. estimates. Other business made up 9% of top line, while Communication still drove growth in Finland. Revenue declined in all other countries, and Swedish EBITA didn’t improve as the comparison period had a positive EUR 0.9m one-off item. The pandemic delayed Norwegian fiber activity, and together with tough winter produced some softness in local results. Meanwhile Denmark saw a positive EUR 0.8m one-off in profitability. Q2 EBIT landed at EUR 4.3m vs the EUR 4.4m/4.1m Evli/cons. estimates. Operative EBITA margin was 2.1% vs our 2.0% estimate. Q3 tends to be the most profitable quarter and we see the respective ‘21 margin at 4.1%, up 110bps y/y. We estimate FY ’21 EBITA margin improving by 130bps to 2.5%.

FI & NO drive short-term, SE & DK hold long-term promise

We moderate our Norwegian estimates a bit but still see the business similarly important for near-term results as Finland. Denmark is for now the smallest of the four but already achieves good margins and probably has the best long-term growth prospects. In our view traffic lighting presents a solid source of business for all four (Finnish street lighting in particular). Finland, Norway and Denmark also offer fiber opportunities, while in Sweden that market is more challenging. There’s scope for M&A, but we believe it probably takes many quarters before anything materializes. We expect Sweden to weigh figures at least in Q3. Eltel is however making progress there, and we see group-level growth turning positive in Q4 thanks to Finnish and Norwegian strength. We estimate Eltel’s Q3 growth to remain negative.

Current valuation leaves solid upside potential

Eltel is valued ca. 7.5x EV/EBITDA and 16x EV/EBIT on our FY ’22 estimates. We see the respective FY ‘23 multiples at 6.5x and 13x. These are somewhat neutral levels compared to peers, but we continue to view valuation attractive as Eltel advances towards its long-term 5% EBITA margin target (we estimate 3.9% for FY ’23). We retain our SEK 29.5 TP and BUY rating.

Eltel - Profitability as expected

27.07.2021 | Earnings Flash

Eltel’s Q2 produced a sixth consecutive annual improvement in operative EBITA and the result was close to estimates. Eltel maintains its previous guidance and expects similar development for the rest of the year.

  • Q2 group revenue amounted to EUR 210.4m, down by 14% y/y and compared to the EUR 228.4m/223.1m Evli/consensus estimates.
  • EBITDA was EUR 12.7m vs the EUR 13.0m/13.0m Evli/consensus estimates. Operative EBITA improved to EUR 4.4m (EUR 2.8m in Q2’20) vs our EUR 4.6m estimate. Operative EBITA margin was therefore 2.1%. EBIT amounted to EUR 4.3m vs the EUR 4.4m/4.1m Evli/consensus estimates.
  • Profitability margins in Finland and Denmark were above our estimates (Denmark was exceptionally good this time), while the Swedish operative EBITA margin remained in the red. The Norwegian margin was a bit below our estimate, but Eltel expects volume pick-up there towards the end of the year. Eltel sees the restructuring in Sweden working out long-term.
  • Eltel guides operative EBITA margin to improve in 2021 compared to 2020 (unchanged).

Eltel - Expecting improvement in Q2-Q4

29.04.2021 | Company update

Eltel’s Q1 results fell short of our expectations. Q1 is typically a weaker quarter due to seasonality and we expect net sales and profitability to increase towards the end of the year. We retain our BUY-rating but adjust TP to SEK 29.5 (30).

Profitability improved y/y despite the decline in net sales
Eltel reported a Q1 result that was below our expectations. Net sales decreased by 23.1% to EUR 182m (Evli EUR 209.9m), while operative EBITA improved y/y from EUR -2.1m to EUR -0.7m (Evli EUR 1.0m). Net sales continued to decline due to the divestments made last year (EUR -15m), lower activity and postponements among customers as a result of COVID-19 and harsh winter conditions. Q1 was good in Finland (+3.2%), while last year’s loss of a major agreement affected the volumes in Sweden and the ramp-up phase of the Telenor frame agreement was reflected in lower sales in Norway. Good resource and production planning, increased efficiency and better project management supported profitability, while the effect of divestments was EUR -0.9m.

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.

Eltel - Results below our expectations

28.04.2021 | Earnings Flash

Eltel’s Q1 results were below our expectations. Net sales amounted to EUR 182m (Evli 209.9m). Operative EBITA improved y/y to EUR -0.7m (EUR -2.1m in Q1/20) but was also below our expectations. (Evli EUR 1.0m)

  • Net sales in Q1 decreased by 23.1% to EUR 182m (EUR 236.6m in Q1/2020) and were below our estimates (Evli EUR 209.9m). Net sales continued to decline partly due to the divestments made last year and partly due to lower activity among customers as a result of COVID-19. Last year’s loss of a major service agreement in Sweden also affected the volumes.
  • Operative EBITA improved y/y to EUR -0.7m (EUR -2.1m in Q1/20) but was below our expectations (Evli EUR 1.0m). The operative EBITA margin was -0.4% (-0.9% in Q1/20). Eltel has succeeded in adjusting the organization to meet the volume changes, which has contributed to the improved profitability.
  • Operating profit in Q1 amounted to EUR -0.8m (EUR -2.2m in Q1/20, Evli EUR 0.8m).
  • Guidance reiterated: Eltel expects the full-year 2021 operational EBITA margin to improve compared to 2020.

Eltel - Divests its High Voltage business in Germany

22.03.2021 | Analyst comment

Eltel has signed an agreement to divest its German High Voltage business to ENACO, a German service provider in the energy sector. Eltel classified its German High Voltage business as assets held for sale at the end of 2020 and the revaluation had EUR -5.7 million impact on Group EBIT in Q4/2020. The transaction is estimated to have negative cash flow effect of EUR 3.8 million. Eltel will as part of the divestment engage ENACO as a subcontractor for the completion of certain projects, which are expected to be completed during 2021 and 2022. The divestment is subject to customary approvals, and the transaction is expected to close during Q2/2021.

The divestment is in line with Eltel’s strategy and strengthens Eltel’s focus on the Nordic countries in which it has a market-leading position and the business model is more stable and repetitive. In 2020, Eltel’s German High Voltage business had about 75 employees and net sales of about EUR 10 million. After the divestments of the High Voltage and Communication business (in Q2/2020), Eltel has only the Smart Grids business left in Germany, which accounted for a smaller share of German net sales in 2020.

The divestment is relatively small and therefore has no effect on our current forecasts. In our estimates, we have already forecast the net sales of other business to decrease by EUR 26.9 million and we expect the share of other business to be ~10% of group net sales in 2021E. We maintain our TP of SEK 30 with BUY.

Eltel - Initiating coverage with BUY

26.02.2021 | Company report

We initiate coverage of Eltel with BUY rating and a TP of SEK 30. We see that Eltel has the potential to succeed in its turnaround and, as such, we expect Eltel’s profitability to improve in the coming years and net sales to turn to growth in H2/2021. In our view, the margin improvement potential is not fully reflected in the current share price.

Eltel is in the midst of its turnaround journey
Eltel is the leading Nordic field service provider for critical power and communication networks. Eltel’s development since the IPO in 2015 did not meet expectations, and following a strategic review in 2017, Eltel has focused on its core businesses, Power and Communication in the Nordics, and the company is currently in the midst of a turnaround journey. The focus is on improving profitability, restructuring non-performing businesses, and strengthening its financial position, with first signs of operational improvement already visible.

We expect the recovery in margins to continue
In 2021E, we expect that net sales will decrease by 2.3% to EUR 916.8 million due to the focus on improving profitability and restructuring non-performing businesses. We expect net sales to turn to growth in H2/2021 and 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 1.6% and 1.9% driven by growing 5G demand in the Nordics, as well as new frame agreements and contract expansions. Eltel has continued to take measures to improve operational efficiency and its exposure to risky and unprofitable projects has reduced over the past couple of years. In line with the guidance, we forecast operative EBITA margin to grow from 1.2% in 2020 to 2.6% in 2021E. Despite the right actions, we are more cautious in our profitability estimates compared to Eltel’s 5% EBITA margin target by 2023 and expect operative EBITA margins to be 3.3% and 3.8% in 2022-23E.

BUY with a target price of SEK 30
Eltel is currently moving in the right direction thanks to a healthier balance sheet, better quality of the order book with a focus on stable Nordic countries and a reduced risk-level of projects. On our estimates for 2022-23E, Eltel is trading at EV/EBITDA of 7.7x and 7.0x, which translate into discount of 11-14% to our peer group median. In our view, Eltel has potential to improve its profitability and the margin improvement potential is not fully reflected in the current share price. We initiate coverage of Eltel with a BUY-rating and a TP of SEK 30. Our TP values Eltel at EV/EBITDA of 8.3x and 7.6x for 2022-23E, which are still slightly (~7%) discount compared to our peer group, reflecting Eltel’s lower profitability profile and as we look for more signs of further transformation progress.

Eltel Q321 interview with CEO Casimir Lindholm

Eltel - Q3'21 video interview with CEO Casimir Lindholm

03.11.2021
Eltel Q221 interview with CEO Casimir Lindholm

Eltel - Q2'21 video interview with CEO Casimir Lindholm

27.07.2021
Eltel Q121 interview with CEO Casimir Lindholm

Eltel - Q1'21 video interview with CEO Casimir Lindholm

28.04.2021
Eltel Q420 interview with CEO Casimir Lindholm

Eltel - Q4'20 video interview with CEO Casimir Lindholm

18.02.2021

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Eltel Q321 interview with CEO Casimir Lindholm

Video presentation

Company Facts

Guidance

Eltel expects the full-year 2021 operative EBITA margin to increase compared to 2020.

Financial targets

Group EBITA margin of 5%. Annual growth of 2-4% in the Nordics from 2022 onwards. Net debt/EBITDA ratio of 1.5-2.5x.

Share price (SEK)


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