Tele2 Earnings: Maintain Our Fair Value; Firm Increases Investments and Reports Flat EBITDAaL Growth

Shares of narrow-moat Tele2 are down by more than 10% at the time of the writing after the firm reported second-quarter results. We believe investors have two main concerns: the first is that Tele2 will not reach its EBITDA after leases guidance for 2023 as EBITDAaL was flat year over year compared with management’s guidance of low-single-digit growth. The second is management increasing its capital expenditure guidance by around 20% for the next two years to strengthen the company’s 5G position, followed by a reduction in 2025 and 2026. Management now expects a capital expenditure/sales ratio of 10% to 14% (or SEK 2.8 billion to SEK 3.9 billion) compared with SEK 2.8 billion to SEK 3.3 billion previously. After these changes there is less room for error by Tele2, so we are maintaining our SEK 100 fair value estimate as medium-term EBITDAaL ambitions for low-single-digit growth look achievable to us and Tele2 management deserves the benefit of the doubt given they have historically been good with guidance and capital allocation.