Tele2 Earnings: Raises Dividend and Announces More Cost-Cutting; Maintaining SEK 100 Valuation

Narrow-moat Tele2 showed on Jan. 30 why it is one of our preferred names in the European telecommunications space. The firm closed a satisfactory year with 3.6% and 1.7% organic growth in service revenue and EBITDA after leases (EBITDAaL), respectively. Management also announced a SEK 600 million cost-cutting plan during the next three years, similar to the SEK 1 billion program it launched for the 2020 to 2023 period. This last plan has resulted in selling and administrative expenses being reduced cumulatively by 190 basis points, from 24.7% of sales in 2020 to 22.8% currently. In 2024, the firm expects 3% to 4% sales growth with 1% to 3% EBITDAaL growth as energy and wage inflation will keep weighing on costs. This is, however, still below management’s EBITDAaL growth target of midsingle digits, which we see as achievable given the firm’s focus on cost-cutting. Management also raised dividends for fiscal year 2023 to SEK 6.90 per share compared with SEK 6.80 in 2022. We are maintaining our SEK 100 fair value estimate and our Exemplary Capital Allocation Rating.