• Earnings up y-o-y, but still undershot our estimates in Q2
• Profitability issues should be mainly contained to '24e
• Raising margins will be a gradual process

Q2: y-o-y improvement, but costs higher than expected

Eltel delivered Q2 sales 9% above our expectations, but costs were materially higher, resulting in adj. EBITA of EUR 0.5m (ABGSCe 8.1m). The main deviation versus our expectations stemmed from Norway, where the Communications market is particularly weak. Meanwhile, Eltel's lack of exposure to Power contracts (which are currently seeing substantially better demand) in Norway means that lost Communication sales cannot be offset as in other segments. It is worth noting that despite falling short of our expectation, Q2 EBITA still showed a y-o-y rise of EUR 2.0m, and all core segments except for Norway saw improved profitability.

EBITA lowered by EUR 15-3m for '24e-'26e

We lower EBITA by 15m in '24e, mainly driven by Norway and Finland. The company plans to scale down the cost base in Norway, but this will likely take a few quarters. In Finland, some unfavourable Power contracts remain on the books, but these should be flushed out. All in all, we assess that much of the current profitability issues are temporary in nature, and therefore our '25e-'26e revisions are smaller at EUR -3m p.a.

Gradual work with pricing, costs, and new markets continues

The process of improving commercial terms on existing contracts, increasing exposure to new and more value-accretive revenue streams, and cutting costs is gradually moving forward. However, we note that raising margins will not be a quick fix, and until we see more progress, we remain somewhat hesitant to assume margins in line with the company's year-end '25 EBITA margin target of 5%. For now, we estimate 0.6-3.7% for 24'e-'26e, and on our estimates, the share trades at 10x '25e EV/EBITA (adj.).