Digitalization And 5G Will Expand Nordic Connectivity

Key Takeaways

• Streamlined structure, efficiency gains, and cost reductions are driving higher net margins, earnings quality, and free cash flow, exceeding analyst expectations.
  
• Market leadership in converged services, enterprise 5G solutions, and sustainability is strengthening customer loyalty, pricing power, and long-term revenue growth.
  
• Sustained heavy investment, regulatory risk, market concentration, and slow digital transformation threaten Telia's revenue growth, earnings stability, and overall financial performance.

Catalysts

Provides communication services to businesses, individuals, families, and communities in Sweden, Finland, Norway, Denmark, Lithuania, Estonia, and Latvia.

• While analyst consensus believes that the divestment of TV and Media will improve revenue predictability and focus, it likely understates the degree to which management's simplified group structure, sharper Nordic/Baltic focus, and continuous portfolio streamlining can unlock multi-year, double-digit gains in net margins and earnings quality by eliminating operational distractions and increasing capital returns.
  
• Analysts broadly agree on cost program benefits for EBITDA, but the positive surprises already seen-such as exceptional reductions in group OpEx, new efficiency tailwinds from the reorganization, and ongoing benchmarking-point to a sustainable, structural reduction in fixed costs well beyond expectations, positioning free cash flow and net margins for even greater upward revisions as digitalization accelerates.
  
• Telia's unsung strength is its rapidly growing convergence in Sweden (now 57% of households), which, combined with scaling unlimited mobile tariffs, gives the company annual pricing power and lower churn reminiscent of the fixed broadband business; this customer lock-in model can drive high-single-digit ARPU and service revenue growth rates over the next several years.
  
• The company's aggressive expansion in advanced 5G and private network solutions for enterprise and industry-supported by partnerships such as the NorthStar innovation program and early traction in private 5G deployments-will allow Telia to tap into the accelerating demand for digital infrastructure, boosting high-margin B2B revenues as cloud adoption and connected devices proliferate.
  
• Telia is poised to leverage its market-leading sustainability and ESG position to capture outsized share of conscious Nordic and Baltic consumers, providing a secular boost in customer loyalty and incremental market share that will drive premium ARPU and support multi-year revenue growth above sector averages.

Telia Company Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Telia Company compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Telia Company's revenue will decrease by 1.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 6.0% today to 12.3% in 3 years time.
• The bullish analysts expect earnings to reach SEK 10.4 billion (and earnings per share of SEK 2.63) by about July 2028, up from SEK 5.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 19.6x on those 2028 earnings, down from 26.0x today. This future PE is lower than the current PE for the GB Telecom industry at 29.6x.
• 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 4.91%, as per the Simply Wall St company report.

Telia Company Future Earnings Per Share Growth

Risks

• Persistent industry-wide capital expenditure requirements for 5G, fiber, and new infrastructure may continue to erode free cash flow, as Telia must invest heavily just to keep pace with market expectations, reducing the ability to grow earnings and ultimately limiting dividend potential.
  
• Regulatory scrutiny and government intervention, particularly around data privacy, competition, and broadband market consolidation, pose a risk to Telia's ability to fully capture synergies from acquisitions like Bredband2, potentially constraining margin expansion and threatening future revenue streams.
  
• Structural and secular shifts-including competition from Big Tech, non-traditional communication players, and agile MVNOs-are likely to continue putting pressure on Telia's traditional telecom business lines, compressing average revenue per user and diminishing both top-line revenue and pricing power over time.
  
• Telia's ongoing retrenchment and asset divestments, such as the planned exit from Latvia and previous market exits, further concentrate revenue generation in the Nordic core, leaving the company more exposed to regional economic stagnation and limiting growth opportunities, thereby heightening the risk to group revenues and long-term earnings stability.
  
• Legacy infrastructure costs, slower execution of digital transformation, and inefficiencies in transitioning to high-margin digital services threaten Telia's ability to improve its net margins, as sluggish adaptation to industry shifts may drive up operating costs and depress return on invested capital in the long run.

Valuation

• The assumed bullish price target for Telia Company is SEK44.82, which represents two standard deviations above the consensus price target of SEK35.72. This valuation is based on what can be assumed as the expectations of Telia Company's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK47.0, and the most bearish reporting a price target of just SEK27.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be SEK84.8 billion, earnings will come to SEK10.4 billion, and it would be trading on a PE ratio of 19.6x, assuming you use a discount rate of 4.9%.
  
• Given the current share price of SEK35.52, the bullish analyst price target of SEK44.82 is 20.7% 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.