Tele2 Earnings: Inflation Bites in, but Offsetting Measures Will Come as Year Progresses

End-user service revenue came in strong for Tele2 in the first quarter of 2023 at a 3.6% growth organically. This did not translate into EBITDA after leases, or EBITDAaL, growth, which declined by 0.4% year over year. Higher inflation and content costs in Sweden were the main drag (Sweden’s end-user service revenue was up 1% while adjusted EBITDAaL declined 4%), but we are not concerned as Tele2 still has to pass these higher costs to consumers in the later part of the year. Tele2 expects to increase prices around 30% to 40% more than what it normally does each year, to better absorb inflationary pressures. We don’t expect these increases will affect subscriber numbers, given Tele2's good reputation and the fact that Swedish consumers are used to price increases. The 0.4% decline in adjusted group EBITDAaL was below management’s guidance of low-single-digit EBITDAaL growth in 2023, but we expect Tele2 will catch up thanks to the price increases and its cost-oriented culture. We are maintaining our SEK 100 fair value estimate, with shares being fairly valued right now.