Tele2 Earnings: Delivers Growth and on Track to Reach 2023 Guidance

Narrow-moat Tele2′s TEL2 B results were positive, overall, as they have removed investors’ concerns that the company would not reach its 2023 guidance. Last quarter Tele2 shares took a 10% hit as there were concerns the company would not achieve its guidance of low-single-digit growth in EBITDA after leases, following a 0.4% decline in the first quarter and flat growth in the second quarter. EBITDAal has grown by a healthy 2.9% in the third quarter, leaving Tele2 in a good position for the full year. We maintain our SEK 100 fair value estimate with shares being slightly undervalued and trading around SEK 85.

Strong growth in the Baltics (20% of revenue) boosted Tele2′s EBITDAaL growth. Service revenue growth of 9% in the Baltics turned into 15% growth in EBITDAaL as price increases more than offset inflationary pressures from employee costs. In Sweden, revenue growth could not offset inflationary pressures, but the trend is improving. Swedish EBITDAaL declined by 1% year over year, compared with a 4% decline in the first quarter and 5% decrease in the second quarter. Although Tele2′s business transformation program was completed by the end of the second quarter, the company is still looking for ways to reduce costs. This cost-conscious approach is why Tele2 is, overall, one of our preferred stocks in European telecommunications. We would like to see a new cost-saving program announced soon.