TEL2 B: Merger Driven Upside Will Likely Disappoint At Current Levels

Analysts have raised their price target on Tele2 to SEK 190, reflecting stronger expected revenue growth, higher profit margins, and a richer merger-driven outlook for telecom operators compared to previous forecasts.

Analyst Commentary

The latest upgrade to Outperform with a SEK 190 price target underscores a more constructive stance on Tele2's ability to benefit from sector consolidation and merger related synergies. Analysts now see improved visibility on revenue growth and margin expansion as integration plans across European telecom markets gain traction.

Despite the higher target, the valuation case remains grounded in disciplined capital allocation and execution on cost savings. The revised outlook implies that Tele2 can deliver above sector total shareholder returns if it successfully captures merger related efficiencies while maintaining stable competitive positioning in core markets.

Some analysts also point to a healthier balance between growth and shareholder distributions. They note that potential deal making in the sector may unlock incremental value through scale, spectrum rationalisation, and network sharing, which could support both cash flows and dividend sustainability over the medium term.

However, the upgraded stance still embeds assumptions around regulatory approvals and integration execution. This means the risk reward profile is viewed as favourable, but not without material downside scenarios should the merger driven thesis fail to play out as expected.

Bearish Takeaways

• Bearish analysts argue that the current valuation already discounts a large portion of the merger related upside, leaving limited room for multiple expansion if execution is slower than projected.
• Concerns persist that integration and restructuring costs tied to sector consolidation could temporarily erode margins, creating downside risk to near term earnings estimates.
• Some see Tele2's growth profile as overly dependent on market consolidation, warning that any regulatory pushback or delayed approvals could cap top line acceleration and pressure free cash flow.
• There is also caution that heightened competitive responses in key markets, including aggressive pricing from rivals, could offset expected merger synergies and undermine medium term return on invested capital.

Valuation Changes

• The discount rate has risen slightly from 4.92 percent to 5.07 percent, indicating a modestly higher required return on equity.
• Revenue growth expectations have increased significantly from approximately 0.64 percent to about 1.26 percent, reflecting a more optimistic top line outlook.
• The net profit margin has improved meaningfully from 14.42 percent to 18.42 percent, pointing to stronger anticipated profitability.
• The future P/E has fallen notably from 22.55x to 17.33x, implying a lower valuation multiple despite upgraded earnings assumptions.
• Fair value remains unchanged at SEK 122, suggesting the higher growth and margin assumptions are broadly offset by the higher discount rate and lower multiple.