Eltel
Eltel - Long-term recovery story intact (ABG Sundal Collier)

2021-10-12 15:52
Q3 report due Wednesday, 3 November
Short-term headwinds continue, but positive outlook intact
Preparing for M&A
Q3 expectations
We forecast sales of EUR 210m, down 8% y-o-y (-9% organic, +1% FX) in Q3’21, with the decrease mainly driven by: 1) recent divestments, 2) the loss of larger contracts included in the comparable period and 3) a continued negative impact from Covid-19. We expect the latter to result in lower customer activity, component shortages, and increased input costs. The market overall has a small number of customers, but plenty of competitors. Combined with some contracts having fixed prices, Eltel’s ability to pass on cost inflation to customers should be limited, to our understanding. We estimate operational EBITA of EUR 7.5m, corresponding to a 3.6% margin, up 0.6pp y-o-y, despite lower volumes. The margin expansion should be driven by continued operational efficiency and the ongoing phasing out of unprofitable contracts.

Estimate changes
To our understanding, supply chain problems have not improved for Eltel and the near-term outlook is not as rosy as it seemed a few months ago. Hence, we lower our ‘21e-‘23e sales and EBITA estimates by 1% and 1-2%, respectively. However, we remain optimistic about Eltel’s recovery story and forecast a ’20-‘23e operational EBITA CAGR of 37%, solely driven by improved profitability.

14x EV/EBITA, ‘22e-‘23e lease adj. FCF yield of 4%
Eltel is trading at 14x ‘22e EV/EBITA, in line with the peer group average. We note high acquisition activity among core peers such as Transtema and Netel, and with Eltel’s internal improvements, combined with the company soon entering the final phase of its turnaround strategy “Investing in sustainable profitable growth”, where M&A is a key part, we see it as likely for Eltel to soon contribute to the consolidation of the market. This is something that could add to our estimates. We trim our fair value range to SEK 18-29 (19-30) to reflect our estimate cuts.


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Eltel - I dag

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Stockholmsbörsen, OMXS30

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