Company Reports

Telia's second-quarter revenue grew by 2.3% with service revenue growing ahead of company-compiled consensus estimates at 3.3%. Similarly, EBITDA was ahead with 6.4% growth, boosted by ongoing cost restructuring and, more surprisingly, on the back of TV and media returning to growth and positive EBITDA. However, we caution investors not to extrapolate any trends in the TV business as its performance has been lumpy for many years. Overall, these are a good set of results and shares were up over 4% in early trading. Management made no changes to guidance and we continue to believe Telia is on track to meet its outlook for low- to mid-single-digit growth in EBITDA and low-single-digit growth in revenue. We maintain our SEK 29 fair value estimate.

Telia’s first-quarter revenue declined by 2%, with 2.2% growth in service revenue offset by lower equipment sales. EBITDA performance was stronger, up 4.6%, boosted by a 5% decline in personnel and other operating expenses in reported terms. Telia has started the year on track to meet its full-year guidance and expects low- to mid-single-digit growth in EBITDA and low-single-digit growth in revenue. We maintain our EUR 29 fair value estimate.

One highlight in narrow-moat Telia's fourth-quarter 2023 results was a SEK 4.1 billion noncash impairment charge that had already been announced on Jan. 24. The charge corresponded to the Finland (SEK 2.8 billion) and TV and media (SEK 0.9 billion) divisions. The TV and media business has been a continuous headache for Telia since 2020 and was a poor capital allocation decision in our view. Affärsvärlden, a Swedish business magazine, has reported Telia could be considering a sale of its TV and media business, a decision we consider to be favorable, given it is in structural decline. We maintain our SEK 29 fair value estimate as the poor performance of TV and media was offset by strong revenue and EBITDA performance in almost all geographies.

During the early 2000s Telia overextended its operations, owning majority or minority

Shares of narrow-moat Telia are up 9% at the time of the writing due to a strong EBITDA development in the third quarter and a slight increase in 2023 guidance. Service revenue grew by 2.6% organically, which translated into 7.6% organic growth in EBITDA thanks to operating leverage and lower energy expenses. All geographies contributed to EBITDA growth and the standouts Finland, Norway, and the Baltics had double-digit growth. Price increases coupled with lower energy expenses were the main drivers of profit growth. In Sweden, which represents 40% of the group’s revenue, EBITDA grew by 4% due to service revenue growth of 2.2% and mix improvements. We maintain our SEK 29 fair value estimate, with shares trading at around SEK 26 after the 9% increase.

In our view, Telia had a satisfactory performance in its telecom business this quarter, with 3.2% organic growth in service revenue and 4.7% growth in EBITDA. However, this was offset by poor performance in the TV business as companies cut advertising expenditures due to recessionary fears. The TV business wiped out most of the growth, turning 4.7% EBITDA growth in telecom to flat EBITDA for the group overall. Telia´s TV business has been a drag for a long time as linear TV is a market in structural decline with lumpy variations between quarters. We maintain our SEK 29 fair value estimate.

Telia’s shares are on the rise (up 7%) as the company beat revenue and adjusted EBITDA consensus expectations (company-provided) and announced the sale of its Danish business. Service revenue came in at SEK 19.4 billion (consensus of SEK 19.2 billion) while adjusted EBITDA reached SEK 7.26 billion (consensus of SEK 7.17 billion). The adjusted EBITDA growth trend has improved compared with last quarter, only declining by 0.8% year on year compared with a 2.0% decline in the fourth quarter of 2022. The easing in energy prices together with slight personnel reductions have helped EBITDA this quarter. We are maintaining our SEK 29 fair value estimate, with shares being fairly priced after the April 26 increases.

We relaunch coverage of Tele2 and Telia, maintaining our narrow moat and stable moat trend ratings for both. Our new fair value estimates are SEK 100 and SEK 29 respectively, compared with SEK 115 and SEK 35 previously, after revisiting our medium- and long-term forecasts.

During the early 2000s Telia overextended its operations, owning majority or minority

Higher energy costs continued to be the main trend during Telia’s fourth-quarter results, causing a 2.0% organic decline in EBITDA despite a 0.7% organic growth in service revenue. Mobile service revenue performed well across all geographies mainly due to price increases, with Norway and Finland leading the way at a 3.5% and 3.8% mobile growth, respectively. In the Baltics (10% of total revenue) sales grew at 5% to 7% organically due to Telia’s strategy of annual price increases in these geographies, with sales growth flowing to the bottom line due to operating leverage and cost control. Denmark’s EBITDA in the fourth quarter jumped 21.4% thanks to significant cost reductions. We are maintaining our SEK 35 fair value estimate for Telia.

The most important news in Telia’s third-quarter earnings is a moderation of its financial outlook for fiscal 2022 and 2023. Management estimates a SEK 600 million higher-than-expected energy cost for 2022, or roughly 2% over EBITDA after leases of SEK 27 billion. While the company expects to mitigate part of the increase with cost savings, this will inevitably have an impact on this and next year's financials. Shares are down 7% at the time of the writing on the news. We are trimming our fair value estimate to SEK 35 from SEK 39 after incorporating a more moderate margin outlook in 2022 and 2023. Telia estimates its EBITDA will increase by low- to midsingle digits, excluding energy costs, in 2022 and 2023, so we assume flat growth after incorporating energy costs. We model a gradual recovery in 2024 and 2025.

After the divestment of its Eurasia operations, Telia has exclusively become a Nordic and Baltics telecom player. Telia’s endeavors into emerging markets, which were expected to deliver higher growth rates than developed markets, were unsuccessful. As a result, Telia retracted to markets closer to its home where telecom growth is expected to stagnate but where it enjoys a stronger position.

Narrow-moat Telia's sales performed well during the second quarter (up 2.4% organically), but EBITDA growth was slightly disappointing, only growing 0.8% organically. Although we are pleased with the efforts the company is making in reducing costs (cost of sales were down 90 basis points and selling expenses down 100 basis points year over year), higher energy costs of SEK 100 million partially offset cost reductions. TV and media was also a drag, as it offset all the EBITDA growth recorded in the remaining divisions due to higher content costs during the quarter. Although reaching the overall 2022 guidance might be a bit challenging on the EBITDA front (we don’t expect challenges on the sales side), management maintained its outlook, which is still achievable if the second half of the year is slightly stronger. We are maintaining our SEK 40 fair value estimate.

After the divestment of its Eurasia operations, Telia has exclusively become a Nordic and Baltic telecom player. Telia’s endeavors into emerging markets, which were expected to deliver higher growth rates than developed markets, were unsuccessful. As a result, Telia retracted to markets closer to its home where telecom growth is expected to stagnate but where it enjoys a stronger position.

Narrow-moat Telia reported good organic growth of 3.2% in service revenues during the first quarter (2.9% in last quarter), with Norway and the Baltics as growth engines in the mid-single-digit range. Sweden recorded a more modest 1.8% organic growth in service revenues (1.5% last quarter), with average revenue per user, or ARPU, growing 4% year over year and stable market share in both mobile and broadband. In the Baltics, sales growth was slower than Tele2 in this same quarter (6% to 8% compared to Tele2’s double-digit growth); however, it is worth noting that Telia is more than two times larger thanks to its fixed-mobile presence, while Tele2 remains only a mobile player. In Finland, sales stabilized after several quarters of declines. We are maintaining our SEK 40 fair value estimate.

During the fourth quarter Telia continued the positive trend in organic growth during past quarters, with service revenue up 2.9% year over year, aided by all divisions bar Finland, which continued the declining trend over the last few quarters due to its higher exposure to the enterprise business, which is seeing revenue pressure in IT and mobile. Sweden, Telia’s largest segment, managed to grow service revenue 1.5% organically, with slight price increases in mobile and broadband, and a stable customer base. Overall, revenue growth did not translate into higher EBITDA despite a 3.6% reduction in operating expenses, as the TV and media division saw a decline in profits driven by higher content costs. We are maintaining our SEK 40 fair value estimate.

There is nothing surprising in Telia’s third-quarter results, which saw revenue grow 3.80% organically aided by double-digit growth in equipment sales across Scandinavia, although service revenue also managed to grow 2.30% organically. Growth in revenue did not flow into the bottom line due to higher pension costs in Sweden and Finland and higher content costs in the TV and media division, with the EBITDA margin down by 140 basis points year over year. We maintain our fair value estimate of SEK 40 per share.

After the divestment of its Eurasia operations, Telia has exclusively become a Nordic and Baltic telecom player. Telia’s endeavors into emerging markets, which were expected to deliver higher growth rates than developed markets, were unsuccessful. As a result, Telia retracted to markets closer to its home where telecom growth is expected to stagnate but where it enjoys a stronger position.

Narrow-moat Telia reported second-quarter results aligned with company-provided consensus. Overall revenue grew 0.5% organically to SEK 21.9 billion, driven by a recovery in TV and media and mid-single-digit growth in Lithuania and Estonia, which was offset by declines in the Nordics. Service revenue (85% of the total) grew 3.2% organically. We maintain our SEK 40 fair value estimate and view the shares as fairly valued.

After the divestment of its Eurasia operations, Telia has exclusively become a Nordic and Baltic telecom player. Telia’s endeavors into emerging markets, which were expected to deliver higher growth rates than developed markets, were unsuccessful. As a result, Telia retracted to markets closer to its home where telecom growth is expected to stagnate.