European Defense Spending Will Expand Satellite Connectivity Market

Key Takeaways

• Increased defense and emergency demand is driving stable, long-term revenue for Ovzon through multi-year contracts and expanded market opportunities.
  
• Improved operational efficiency and adoption of proprietary satellite solutions are boosting margins and enabling profitable, sustained growth.
  
• Heavy reliance on government contracts, rising competition from LEO satellites, high capital needs, regulatory risks, and evolving technologies threaten Ovzon's revenue stability and market position.

Catalysts

Engages in providing mobile broadband services in Sweden.

• The surge in defense spending-particularly from European entities like NATO and the Swedish Defence Materiel Administration-is driving long-term, multi-year contracts and recurring revenue for mission-critical connectivity, indicating durable topline growth and improved earnings visibility.
  
• Growing urgency for resilient, high-throughput satellite communication in light of escalating geopolitical tensions and the increasing frequency of natural disasters is expected to expand Ovzon's addressable market across defense, emergency response, and security segments, supporting sustained revenue growth.
  
• Recent transition from investment to profitable growth (four consecutive quarters of positive EBITDA and a historic contract win) signals increasing utilization of the Ovzon 3 satellite, structurally lifting gross margins as proprietary capacity is leveraged over third-party leases.
  
• Enhanced adoption of integrated, value-added services (e.g., managed mobile satellite terminals and end-to-end solutions) positions Ovzon to capture higher average revenue per user, improve pricing power, and generate more stable, higher-margin business lines, boosting net margins over time.
  
• Successful scale-up, increased order book, and operational discipline are reducing fixed cost risk and driving operating leverage, supporting further net earnings growth as the company secures new contracts, renewals, and enters adjacent markets such as public safety and emergency services.

Ovzon Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ovzon's revenue will grow by 34.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -18.3% today to 40.3% in 3 years time.
• Analysts expect earnings to reach SEK 450.1 million (and earnings per share of SEK 2.59) by about August 2028, up from SEK -85.0 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 12.7x on those 2028 earnings, up from -49.0x today. This future PE is lower than the current PE for the SE Telecom industry at 29.1x.
• 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 4.92%, as per the Simply Wall St company report.

Ovzon Future Earnings Per Share Growth

Risks

• High dependency on government and defense contracts exposes Ovzon to U.S. budget cycles, political risk, and procurement delays-as evidenced by the non-renewal of a key U.S. DoD contract-potentially leading to volatile or declining revenue and unpredictable cash flow.
  
• Growing success of Low Earth Orbit (LEO) satellite constellations (e.g., Starlink, OneWeb, Amazon Kuiper) is changing competitive dynamics in satellite communications; while Ovzon currently positions its geostationary solutions as complementary, long-term LEO adoption may compress Ovzon's addressable market and exert downward pressure on pricing and revenues.
  
• Significant upfront investments in proprietary satellite technology, capacity, and infrastructure-including potential future satellites-require substantial capital and expose Ovzon to financing risks; capital constraints or cost overruns could compress net margins and exacerbate debt or equity dilution.
  
• Advances in terrestrial 5G/6G infrastructure and integration may erode the long-term demand for certain satellite communication use cases, especially in public safety or remote connectivity segments, possibly resulting in structural declines in Ovzon's core service revenues.
  
• Increasing regulatory complexity in spectrum allocation, cybersecurity standards, and international satellite coordination may slow Ovzon's time-to-market for new offerings, raise compliance and security-related costs, and negatively impact earnings and operational flexibility.

Valuation

• The analysts have a consensus price target of SEK44.5 for Ovzon 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 SEK1.1 billion, earnings will come to SEK450.1 million, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 4.9%.
  
• Given the current share price of SEK37.35, the analyst price target of SEK44.5 is 16.1% 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.