Last Update 06 Nov 25
Fair value Decreased 25%NETEL: Profit Margin Gains Will Offset Weaker Revenue Next Year
Analysts have adjusted their price target for Netel Holding downward from SEK 6 to SEK 4.5. They cite slightly weaker projected revenue growth, which is partially offset by an improved profit margin outlook and a lower projected future P/E ratio.
What's in the News
- Netel has entered into an agreement with Ellevio for the reconstruction and refurbishment of a distribution station on Lidingo, northeast of Stockholm, in a deal valued at approximately SEK 50 million. The project will start in autumn 2025 and is scheduled to finish in autumn 2028 (Client Announcements).
- Netel Holding AB (publ) reaffirmed its earnings guidance for 2025, projecting full-year revenue of around SEK 3 billion as of 1 October (Corporate Guidance).
- Netel provided guidance that 2025 revenue is expected to decrease by roughly 9% compared to 2024, deviating from its target of 3 to 5 percent annual organic growth. Other operations are forecasted to achieve an adjusted EBITA margin of approximately 4 to 5 percent for 2025 (Corporate Guidance).
Valuation Changes
- Consensus Analyst Price Target has decreased from SEK 6 to SEK 4.5, indicating a notable downward revision in perceived fair value.
- Discount Rate has risen slightly from 9.97% to 10.12%, reflecting a marginally higher required return by investors.
- Revenue Growth forecasts have improved moderately, with the expected decline narrowing from -1.15% to -0.73%.
- Net Profit Margin outlook has strengthened from 2.79% to 4.06%, signaling an anticipated improvement in profitability.
- Future P/E ratio is projected to fall significantly from 4.39x to 2.34x, which suggests lower expected valuation multiples.
Key Takeaways
- Strategic focus and resource allocation through divestment and new agreements support revenue growth and net margin improvement in key European markets.
- Enhanced operational efficiency through digital tools and improved cash flow positively impact liquidity, reducing financial leverage and supporting earnings growth.
- Heavy reliance on Sweden and Norway and strong competition in Infraservices threaten revenue stability and future profitability.
Catalysts
About Netel Holding- Provides construction and maintenance services for communication infrastructure and power networks in Sweden, Norway, Finland, Germany, and the United Kingdom.
- The growing order backlog and strong tender season indicate a solid pipeline of future projects, particularly in Power and Telecom, that could drive revenue growth in the coming years.
- The divestment of Finnish operations is set to free up resources, allowing Netel to focus on its core and growth markets in Sweden, Norway, Germany, and the U.K., potentially improving net margins through strategic focus and efficiency gains.
- Recent framework agreements, particularly with Glitre Nett and Tele2, provide a stable revenue base and the opportunity for geographic expansion, increasing the likelihood of revenue growth and margin improvement over time.
- The implementation of new digital tools is expected to enhance operational efficiency and positively impact margins as fine-tuning continues throughout the year, potentially leading to higher earnings.
- Seasonal cash flow improvements and the absence of significant one-off costs (such as earn-outs) in 2025 will help improve liquidity and the net debt position, supporting EPS growth as financial leverage decreases.
Netel Holding Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Netel Holding's revenue will grow by 6.0% annually over the next 3 years.
- Analysts assume that profit margins will increase from 1.5% today to 4.5% in 3 years time.
- Analysts expect earnings to reach SEK 172.8 million (and earnings per share of SEK 2.85) by about September 2028, up from SEK 47.0 million today.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.5x on those 2028 earnings, down from 10.8x today. This future PE is lower than the current PE for the SE Construction industry at 15.4x.
- Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 9.97%, as per the Simply Wall St company report.
Netel Holding Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Strong price competition in Infraservices has led to lower margins, and continued high competition is expected in 2025, potentially impacting future profitability.
- Seasonality in the business results in lower volumes and decreased cash flow in the first quarter, which can strain financial performance in terms of earnings and cash management.
- The company remains above its capital structure target on net leverage, with net debt at 3.0x compared to the target of 2.5x, indicating potential risk to financial stability or flexibility.
- The Telecom division, which is the largest by sales, is currently below desired profitability levels, with a low EBITDA margin of 0.8%, suggesting a need for improvements to meet financial targets.
- Dependence on a few markets (Sweden and Norway account for 93% of sales) exposes the company to regional economic fluctuations, which could affect revenue stability if these markets experience downturns.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of SEK17.5 for Netel Holding based on their expectations of its future earnings growth, profit margins and other risk factors.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK3.9 billion, earnings will come to SEK172.8 million, and it would be trading on a PE ratio of 6.5x, assuming you use a discount rate of 10.0%.
- Given the current share price of SEK10.5, the analyst price target of SEK17.5 is 40.0% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
How well do narratives help inform your perspective?
Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.