We increase our target price for Eltel to SEK 9.0 (was SEK 7.2) and our recommendation to Accumulate (was Reduce). The Q1 performance was broadly in line with our estimates in terms of revenue. However, what clearly stood out was the strong profitability, as the company delivered a positive operating result in a quarter that is typically loss-making due to seasonal effects. As such, we are seeing increased evidence of Eltel’s strategy and focus on operational excellence yield notably tangible results. Cash flow was also very strong for a first quarter, supported by efficient working capital management and improved profitability. Following the report, we have revised our profitability estimates upward while leaving our revenue assumptions largely unchanged. In light of the improved earnings outlook, we think the current share price level offers a good expected return over the next 12 months on a risk-adjusted basis.

Q1 profitability surprised on the upside

Eltel’s Q1 report showed encouraging signs of continued operational progress. While Group revenue declined by 4% year-on-year to 170 MEUR, in line with our expectations, the key positive surprise came on the profitability side. Adjusted EBITA amounted to 0.9 MEUR, a clear improvement from -4 MEUR in the comparison period and well ahead of our forecast of -2.6 MEUR. The improvement was driven by a 19% increase in gross profit (y/y) and enhanced operational efficiency across all Nordic markets, except Norway, which still faces some residual impacts from prior restructuring efforts. At a country-unit level, top-line growth was quite mixed across geographies. Sweden delivered solid year-on-year growth of 5%, which was well above our estimated -5%, primarily supported by increased activity within public infrastructure projects. Conversely, other markets such as Finland and Norway underperformed relative to our estimates (0% vs +9% & -9% vs -5%). Further down the P&L, net financial costs, taxes, and minority interests came in slightly higher than expected. However, the stronger-than-expected profitability led to a reported EPS of EUR -0.02, above our estimated EUR -0.04.

Estimate changes focused on the profitability

The Q1 report and management’s commentary suggest no major changes to the broader outlook, with demand remaining mixed across geographies and service lines. Outside Norway, demand appears at least decent. Reflecting on the report, management commentary, and the notable improvements in both profitability and cash flow, we have raised our profitability estimates for the Group, while leaving revenue forecasts largely unchanged. At a Group level, our EBITA estimates increased by 10-21% for 2025-2027. These revisions reflect our growing confidence in Eltel’s ability to sustain its profitability turnaround through continued strategic execution.

We now see upside potential in the stock

Following our upward revisions to profitability, we believe that the overall earnings-based valuation for the current year is quite neutral (EV/EBITDA 4x, EV/EBIT 9x, P/E 14x). Adding to this, we argue that the overall earnings-based valuation for 2026 looks increasingly attractive (EV/EBITDA 4x, EV/EBIT 7x, P/E 8x) given our acceptable valuation range (EV/EBITDA 4x-7x, EV/EBIT 7x-11x, P/E 9x-13x). Despite Eltel’s historically volatile earnings and ongoing profitability challenges in Norway, we think that recent profitability improvements, and further deleveraging, support a more positive view of the company’s turnaround progress than we previously held. Reflecting this overall picture, we see the expected return on the share to be positive over the next 12 months and above the cost of equity we use, suggesting an attractive risk/reward at the current share price.