Eltel - New services improving the financial profile

• Q2e: big y-o-y earnings improvement
• Raised EBITA driven by increasing emerging service sales
• Share trading at 10x '26e EV/EBITA, goes to 7x in '28e

Q2e: significant y-o-y EBITA improvement

We expect Eltel to report Q2 net sales of EUR 211m, up 5% y-o-y, (4% organic, 1% FX). Although not as strong as the Q1 organic growth of 11%, which was boosted by completion of a larger Finnish project, we expect organic growth figures in Q2 and ahead to improve due to so-called emerging services reaching a sizeable share of sales (23% in Q1'26 vs. 6% in Q1'25), as well as the contract pipeline (53% in Q1'26 vs. 38% in Q1'25). Moreover, these new sales typically carry higher margins than Eltel's legacy business, and thus we model a significant y-o-y profitability increase, with Q2 EBITA of EUR 8.4m (2.5m in Q2'25) for a margin of 4.0% (1.2%).

Raised organic growth and margin assumptions

We raise our estimates for both organic growth and margins, and both for the same reason – the aforementioned increasing share of emerging service revenues. This results in our '26e-'27e EBITA coming up by 3%, and 4% for '28e.

Strategic shift now clearly improving the financials

The strategic shift away from a largely telecom-focused business model towards more diversified and faster-growing markets is now starting to show more clearly in the financials. There is still much room left to reach the EBITA margin target of 5% (compared to 2.7% on a r12m basis), and our estimates remain somewhat short of the target at 4.2% for '27e and 4.6% for '28e. Still, we model a substantial '26e-'28e adj. EBITA CAGR of 17%. On our estimates, the share is trading at 10x '26e EV/EBITA, which falls to 7x by '28e.