Telia Earnings: Shares Up 9% After 8% Growth in EBITDA; Maintain Our SEK 29 Fair Value Estimate

Shares of narrow-moat Telia 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.

The increase in 2023 guidance was modest, from “flat- to low-single-digit growth” in EBITDA to “low-single-digit growth.” We anticipate a strong fourth quarter given easy comparable figures and healthy developments recently. However, we don’t anticipate Telia’s performance this quarter will extend into the long term given the competitive nature of telecommunications markets. Telia’s net debt/EBITDA ratio went back to 2.5 times (guided range of 2.0 to 2.5 times) and it is expected to decrease by around 0.2 times after the divestment of Telia Denmark. Telia’s TV and media division (10% of revenue) continues to lag with an 8.6% decline in revenue and big shifts in quarterly EBITDA.