Media Sale To Schibsted And Telecom Focus Will Secure Success

Key Takeaways

• Strategic focus on core telecom operations and cost efficiencies may enhance revenue predictability and improve net margins.
  
• Disciplined capital allocation supports potential dividend growth and robust revenue growth from key markets in Sweden and the Baltics.
  
• Reliance on core operations, regional challenges, macro risks, and aggressive pricing pressure could impact Telia's revenue growth and margins.

Catalysts

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

• Telia Company has sold its TV and Media business to Schibsted Media, allowing for a sharper focus on core telecom operations. This strategic shift could lead to improved revenue predictability and growth in its telecom services.
  
• The company's ongoing change program has enabled significant cost efficiencies, which have driven EBITDA growth by nearly 7% this quarter, suggesting potential for improved net margins as these efficiencies continue.
  
• CapEx is consistently being managed under SEK 14 billion, showing disciplined capital allocation that might enhance future free cash flow, supporting the company’s ambition for dividend growth.
  
• Service revenue growth, particularly from Sweden's strong performance and the burgeoning Baltic markets, reflects a solid foundation that might bolster revenue growth prospects.
  
• Telia Towers, now a separate entity, has shown impressive EBITDA growth of over 25% in three years, with increased tenancy ratios, which may positively impact earnings as it continues to expand its external revenue base.

Telia Company Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Telia Company's revenue will decrease by 2.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.5% today to 10.4% in 3 years time.
• Analysts expect earnings to reach SEK 8.7 billion (and earnings per share of SEK 2.24) by about May 2028, up from SEK 5.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK10.8 billion in earnings, and the most bearish expecting SEK7.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.0x on those 2028 earnings, down from 28.7x today. This future PE is lower than the current PE for the GB Telecom industry at 26.5x.
• 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 4.76%, as per the Simply Wall St company report.

Telia Company Future Earnings Per Share Growth

Risks

• The sale of Telia's TV and Media business may reduce revenue diversity and result in heavy reliance on core telecommunications operations, potentially impacting total revenue.
  
• Challenges in Finland and Norway with negative service revenue growth and declining postpaid subscriber bases could impact Telia's overall revenue and pressure EBITDA margins.
  
• Macro risks, such as potential adverse economic conditions in Swedish enterprise markets and increased SME bankruptcies, could negatively affect revenue growth in business segments.
  
• Norway's EBITDA decline, worsened by the ICE wholesale contract migration, poses a risk to Telia's EBITDA until the decline is stabilized.
  
• Pressure from aggressive pricing in the market and potential subscriber losses in key segments, like enterprise B2B in Sweden, could hinder revenue growth and net earnings.

Valuation

• The analysts have a consensus price target of SEK34.68 for Telia Company based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK41.0, and the most bearish reporting a price target of just SEK29.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK84.0 billion, earnings will come to SEK8.7 billion, and it would be trading on a PE ratio of 18.0x, assuming you use a discount rate of 4.8%.
  
• Given the current share price of SEK36.15, the analyst price target of SEK34.68 is 4.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.