Eltel - Margin-beat and strengthened balance sheet

• Substantial margin-driven EBITA beat
• We raise EBITA by 6-5% for '26e-'27e
• Balance sheet soon supportive of dividends, in our view

A margin-driven earnings beat

Eltel reported Q4 net sales of EUR 239m (+6% vs. ABGSCe) and EBITA of EUR 8.3m (+31% vs. ABGSCe EUR 6.3m), for an EBITA margin of 3.5% (ABGSCe 3.0%). The earnings beat was driven by Sweden, where the company notes broad-based improvements across several end-markets. On a sequential basis, net debt came down significantly, which combined with higher earnings resulted in ND/EBITDA falling to 3.0x (3.9x in Q3), or 1.9x excluding lease liabilities (2.7x in Q3). In fact, given the recent margin improvements and subsequent strengthening of the balance sheet, we assume Eltel will pay out dividends starting from the fiscal year 2026 (i.e. first payment in 2027). The fact that the balance sheet will soon support dividends is a testament to the company now being in a much better spot compared to just a few years ago.

EBITA raised by 6-5% for '26e-'27e

With higher operating margins driving a significant EBITA beat compared to our estimates, we take a more optimistic view on margin expansion ahead as well. This leads to us raising our '26e-'27e EBITA by 6-5%.

Company expects to reach margin target in 12-18 months

One highlight of the report, from our perspective, was that Eltel specified a concrete timeline for when it expects to reach its 5% EBITA margin target – 12-18 months. Although there have been material profitability improvements in recent years, the target still implies a significant rise from the r12m EBITA margin of 2.5%, and while we are optimistic on the margin trajectory, we remain somewhat more cautious than the target (we have 3.4-4.5% for '26e-'28e). Finally, the share is now trading at 10-8x '26e-'27e EV/EBITA, according to our estimates.