Eltel: Likely no quick fix to cost inflation – ABG


• Q2 report due on Thursday, 27 July
• Some but not full effect from cost savings programme
• Trading at 17x ’24e-’25e EV/EBITA

Q2 expectations
We expect Eltel to report net sales of EUR 201m, down 3% y-o-y (+2% org, -5% FX). While organic growth is expected to be within the company’s 2-4% target, we expect margins to remain pressured in Q2. First, we should start seeing some positive earnings effects from the cost savings programme, which includes a workforce reduction of ~200 employees, but management has been clear that it will not reach the full savings runrate of EUR 10m per annum by Q2. Second, we expect the poor margins on certain Finnish contracts to remain due to difficulties in receiving full compensation for cost inflation. As well, management stated in the Q1 conference call that the widespread worker strikes in Finland and Norway have not had significant effects on Q2 earnings. All in all, we estimate an EBITA of EUR -1.4m (0.5m).

’23e EBITA down EUR 3m, driven by margins in Finland
We lower EBITA by ~EUR 3m for ’23e, driven by Finland, where we take a more cautious view on margins due to persistent cost inflation issues. Moreover, the recent strong EUR rate adds a small headwind on EBITA ’23e-’25e, but this effect is fairly minor.

17x ’25e EV/EBITA, company target implies 5.7x on ’25e
Assuming the mid-point of the company’s growth target of 2-4% and EBITA margin target of 5%, it would imply a ’25e EV/EBITA of 5.7x. However, we note that our estimates leave a notable buffer to the company’s targets, mainly since we want to see signs of a positive earnings trend before we factor significant margin expansion into our estimates. As such, the share is trading at a ’25e EV/EBITA of 17x on our current estimates.


ABGSC Commissioned Research