On Thursday, CFRA adjusted its stance on Tele2 (ST:TEL2b) AB (TEL2B:SS) (OTC: TLTZY) stock, downgrading the rating from Buy to Hold while maintaining a price target of SEK110.00.
The firm's decision reflects a valuation based on a 2024 enterprise value to EBITDA (EV/EBITDA) ratio of 8.7 times, which aligns with the company's historical forward multiples ranging from 9 to 10 times. The target price also correlates with a dividend yield of approximately 7%, considered consistent with Tele2's industry peers.
The downgrade comes despite Tele2's steady financial performance, as evidenced by its recent quarterly results. Tele2 reported a 1% increase in second-quarter revenue on a like-for-like basis, bolstered by a 4% rise in end-user service revenue.
The underlying EBITDAaL for the same period saw a year-over-year increase of 3% to SEK1.9 billion, propelled by growth in end-user service revenue and cost savings achieved through the company's Strategy Execution Program (SEP).
CFRA has kept its earnings per share (EPS) estimate for 2024 at SEK5.60 and has increased its 2025 EPS forecast to SEK6.00 from SEK5.80. The firm's analysis suggests that Tele2 is likely to experience flat to single-digit growth in revenue and EBITDAaL for both 2024 and 2025, as the Swedish market, a significant contributor to Tele2's revenue, shows signs of stabilization.
The analyst's commentary indicates that the current valuation of Tele2's shares is fair when considering the company's consistent earnings, stable cash flows, and dividends. The outlook for Tele2, as per CFRA's assessment, is one of stability rather than significant growth, leading to the revised Hold rating.
InvestingPro Insights
In light of CFRA's recent downgrade of Tele2 AB (OTC: TLTZY), a closer look at real-time data and InvestingPro Tips can provide additional context for investors assessing the company's position. Tele2's market capitalization stands at $6.95 billion, with a healthy revenue growth of 3.08% over the last twelve months as of Q1 2024. Moreover, the company boasts a solid gross profit margin of 41.3%, indicating its efficiency in maintaining profitability amidst competitive pressures.
InvestingPro Tips highlight Tele2's significant dividend payments, which align with CFRA's valuation that incorporates a roughly 7% dividend yield. Additionally, Tele2's stock trades with low price volatility, offering stability for investors. It's worth noting that the company has maintained dividend payments for 21 consecutive years, reinforcing its commitment to shareholder returns. These factors, coupled with the prediction that Tele2 will remain profitable this year, provide a foundation for the Hold rating.
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