Telia is involved in a massive fiber optic business deal on a Finnish scale. As CapMan’s fund exits, Telia is increasing its ownership in Valokuitunen to 49%, while the remaining stake is transferred to the investment firm Brookfield. Telia’s share of the purchase was €30M, which helps in estimating the overall scale of the transaction.
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Here’s a pre-earnings report from Joni on Telia, which will report its Q1 results this Friday. 
We expect Telia’s revenue growth to have been moderate and its earnings development to have remained stable. Our forecasts particularly emphasize the strong momentum in the Swedish and Baltic operations, while in the Finnish and Norwegian markets, we are looking for signs of a gradual turnaround for the better. We added a small acquisition of Bredband2 to our forecasts. We reiterate our target price of SEK 38.0 for the stock. However, due to the share price increase, the stock’s valuation has become very tight, and we downgrade our recommendation to Sell (previously Reduce).
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Here are Joni’s quick comments on the Q1 result
Overall, Telia’s Q1 report was very much in line with our and consensus expectations. Comparable revenue grew slightly but fell a bit short of our estimates. Adjusted EBITDA grew in line with expectations, but non-recurring items were slightly larger than expected and explain the miss on the lower lines. Cash flow was strong in Q1 but will level off in Q2, and the company reiterated its guidance. By market, Sweden continued strongly, Finland saw a slight pick-up, and there are still some dark clouds in Norway.
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Here is a company report on Telia from Joni regarding the Q1 results
We are raising the target price for Telia’s share to SEK 41.0 (prev. 38.0), driven by the convincing execution of the strategy and efficiency measures, which has lowered the operational risk level. At the same time, we reiterate our Sell recommendation. Telia’s Q1 revenue slightly missed expectations, and earnings grew in line with our expectations. In the big picture, confidence in earnings growth and especially cash flow has improved over the past year or so. However, the trajectory of earnings growth is not sufficient to turn the valuation positive, as the valuation picture remains very stretched.
Telia starts share buybacks 
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These purchases are made for employee remuneration purposes, not for cancellation.
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Telia apparently made a medium-sized divestment of IT services in Finland. It’s good that they can reduce their cost base this way, even though no figures were disclosed other than the number of employees.
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I can certainly understand Telia’s recent changes, as it was one of those operators that set out to “diversify” its business in the 2000s. I have personally sat in a room with Elisa’s top executives while they assured us (the customers) that the traditional telecom business isn’t growing and competition is fierce. Telia’s response involved things like the Helsinki data centers, Cygate acquisitions, and the media business.
Now that these are being dismantled at full speed and the focus is shifting back to wireless and wired data transmission—effectively de-diversifying the business—I wonder if this is still a way to grow, or simply a way to generate better profits?
I would imagine that the media business was an unequivocal mistake, and the mixed IT service sales like Cygate’s were low-margin and labor-intensive. Elisa, as far as I know, has stuck to the old model; their business model includes a diverse range of completely different services, some of which are truly international. In this sense, the operators are moving in different directions.
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I hope Telia’s years of adventuring here and there are behind them; it became expensive for us shareholders. Now they should focus on Telia’s traditional operator business in the Nordics and Baltics, and hone profitability and competitiveness to their peak. This will enable good dividend payments and a moderate rise in the share price going forward.
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Here are Joni’s preview comments ahead of Telia’s Q2 results on Friday.
We expect the company to continue its steady operational performance and estimate that comparable revenue and earnings have grown modestly. We consider the reiteration of guidance, cash flow development, and a status update on the turnaround markets (Finland and Norway) to be the key focal points of the report.
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Went well, but let it go! 
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I think the results are heading in the right direction, and hopefully, this machine will pay out a higher dividend than the current one at some point
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Here are Joni’s quick comments on Telia’s Q2 results
We consider Telia’s Q2 report positive, and in terms of numbers, it was slightly better than our expectations. Revenue grew slightly better than we anticipated, driven by strong momentum in Norway. Adjusted EBITDA was in line with expectations, but non-recurring costs were higher than expected, so the reported result was very close to our estimates. The figures were well in line with market expectations. Cash flow was clearly stronger than our forecasts, the consensus, and the company’s guidance, but the company expects it to level off in the second half of the year. By market, Sweden continued its good momentum, Finland was slightly soft, and Norway showed a positive pick-up. Overall, it was a good report and one expected by the market, but in our view, the good performance and earnings growth are already well priced into the stock.
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Telia, which has underperformed for a long time, is emerging as a real challenger to Elisa, and a change of guard in the telecommunications market is near, especially if similar results are seen in the coming years. Excess operations have been trimmed, the focus has shifted to core business areas, and operational efficiency has taken a leap for the better. Today, I discussed with @Joni_Gronqvist on video whether Telia has even emerged as a higher-quality company than Elisa.
Spoiler alert: Not quite yet, because the track record is still limited, but the gap has narrowed to very little.
Topics:
00:00 Introduction
00:22 Price competition in the market
04:00 Elisa’s growth has stalled
06:10 Data centers not yet providing a boost for Elisa
07:55 More cautious view on Elisa’s stock
10:13 Telia emerging as a more stable and focused company
15:31 Telia’s valuation is still a sticking point
16:35 Number one in the telecommunications market
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