We reiterate our Reduce recommendation and SEK 7.20 target price for Eltel. The company’s growth slightly exceeded our estimates, whereas its operating result increased from the comparison period, but fell short of our expectations. Thus, the company’s development was a step in the right direction, but somewhat slower than we expected. We made only small estimate revisions after that report, and we still expect the company’s profitability to increase gradually in the coming years. However, we see this to be largely priced at the current stock price and view the expected risk-adjusted return to be inadequate for the next 12 months. Q2 revenue slightly over expectations, whereas EBITA fell short of our estimate In Q2, Eltel’s revenue grew by 4% to 216 MEUR, exceeding our forecast slightly. At country unit level, the quickest growth was in Denmark with 18% growth, which also clearly exceeded our estimate (+1%). Otherwise, the other country units’ development were broadly in line with our estimates. The Group’s EBITA increased from the comparison period and landed at 0.5 MEUR, corresponding to an EBITA margin of 0.2%. However, the company’s operating profit level was thus below our forecasts. This development was due to slightly lower margins in all country units besides Sweden, which was in line with our expectations. At the bottom line of the P&L, the net financial costs were lower than we expected and taxes slightly positive compared to our slightly negative estimate. Given the above overall picture, reported EPS landed at -0.02 EUR compared to our forecast of -0.01 EUR. Only minor tweaks to our coming years’ estimates According to the company, it has seen reduced investment levels from telecom operators in all Nordic countries, except Finland, where a major fiber rollout is underway. On the other hand, the situation in Power is opposite in all Nordic countries, except for Power Distribution in Finland. According to our understanding, the demand situation is at a good level everywhere except in Norway. In view of this, the company has already implemented some cost reduction measures and says that further initiatives will be taken. Reflecting the report and the comments, we made only minor changes to our current year’s estimates (i.e. increased our growth estimates slightly and lowered our margin expectations slightly in some country units). However, the current year’s estimate revisions were mainly driven by the actualized Q2 figures. Accordingly, we kept our estimates for coming years basically intact on Group level and still expect the company’s profitability to increase gradually in the coming years through its strategic initiatives. We have discussed our estimates for the coming years in more detail in our initiation of coverage report.  Short-term earnings-based valuation is still challenging Based on our updated estimates, we believe that the overall earnings-based valuation is challenging for this year (adj. EV/EBITDA 6x, EV/EBIT 25x, P/E neg.). On the other hand, we argue that next year’s overall earnings-based valuation will be more in neutral territory, at least when it comes to EV-based multiples (EV/EBITDA 5x, EV/EBIT 11x, P/E 21x). However, if the development continues along the path we expect, we believe there might be some upside in the 2026 multiples (EV/EBITDA 4x, EV/EBIT 9x, P/E 10x) with profitability improvement remaining intact. Given Eltel’s volatile track record, however, it is hard to rely too much on this at this stage. Reflecting this overall picture, we see the risk-adjusted expected return on the share over the next 12 months below the cost of equity we use.

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