Eltel's Q2'26 report was mixed relative to our estimates. The top line fell short of our forecast as Finnish growth normalized more abruptly than anticipated. Profitability, however, once again exceeded expectations and extended the improvement streak to twelve consecutive quarters of year-on-year margin gains, providing further evidence that the profitability turnaround is structural. Growth was again Power-led, but the fading of the exceptional Finnish momentum weighed on the Group revenue. Norway was the clear standout, extending its multi-quarter recovery, and Denmark & Germany disappointed on profitability, with the continued decline in Danish Communication outweighing solid operational performance in Germany. Management reiterated its confidence in reaching the 5% adjusted EBITA margin target within the previously stated 12--18-month timeframe, and we believe the continued broad-based margin progress supports that conviction. However, we continue to believe the burden of proof rests with Eltel to demonstrate the 5% target is achievable on management's timeline. We make only modest changes to our 2026-28e estimates following the report, and reiterate our Accumulate recommendation while trimming our target price to SEK 13.9 (was SEK 14.0).

A mixed picture across the country units

Group revenue declined 0.7% year-on-year to 200 MEUR, ~6% below our forecast of 212 MEUR. The country-unit picture was mixed rather than a uniform miss. Finland was the main source of the revenue shortfall (83 MEUR vs Inderes 95 MEUR), as strong Power volumes in solar PV and data center solutions could not offset lower Communication volumes following the normalization of the FTTH rollout cycle. Sweden was broadly in line, with Communication strength in telecom, public infrastructure and defense offset by softer Power. Denmark & Germany (-5% y/y) fell short of our estimate, as a solid German delivery could not compensate for continued Danish Communication weakness and Energinet grid-connection bottlenecks. Norway (+7% reported, organic only +0.4%) was the clear standout, aided by customer-base expansion in Emerging services and a translational tailwind from the stronger krone. On profitability, the mix shift toward higher-margin Emerging services, improved operational efficiency and stricter pricing discipline continued to lift margins (2.8% vs Inderes estimate 2.4%), even as slightly elevated input costs and weaker profitability in Denmark weighed modestly. In addition, we find it encouraging that Norway sustained a positive margin (4.9%), supporting the Group’s twelfth consecutive quarter of year-on-year improvement.

Modest cuts to revenue, margin story preserved

Following the report, we make only modest changes to our 2026-28e estimates, trimming revenue by ~3% while leaving adjusted EBITA broadly unchanged. The recently announced contract wins (54 MEUR of Finnish contracts and the ~13 MEUR GlobalConnect agreement in Denmark) were already incorporated into our preview estimates and are therefore not driving the current revisions. We lower 2026e revenue to 843 MEUR (was 865) but hold adjusted EBITA at 30.8 MEUR, leaving the margin at 3.7% (was 3.6%) as stronger unit-level profitability, led by Finland and a structurally improved Norway, offsets the lower volume base. For 2027-28e, we trim revenue by ~3% but nudge margin assumptions to 4.1%/4.4% (from 4.0%/4.2%), leaving adjusted EBITA broadly flat. The pending Vattenfall service-and-maintenance framework (up to 275 MEUR incl. options) offers further upside once formally signed.

Risk/reward stays favorable despite the revenue miss

On our updated estimates, Eltel's 2026e earnings-based multiples are neutral to slightly elevated (EV/EBITDA ~6x, EV/EBIT ~11x, P/E ~16x), but compress to attractive levels into 2027 (~5x, ~9x, ~10x) on continued revenue growth and margin expansion. With twelve consecutive quarters of year-on-year margin improvement now behind it and a structurally more resilient business, we remain comfortable placing meaningful weight on forward-looking valuation. Our DCF model supports a value per share of EUR 1.25 (SEK 13.9), in line with our target. Overall, we continue to see the risk-adjusted expected return as attractive at the current share price.