Kepler Cheuvreux has moved Tele2 into its buy column, upgrading the Swedish telecom operator from "hold" and maintaining a target price of SEK195. The broker said the change reflects what it views as a compelling opportunity to acquire exposure to a defensive, cash-producing operator after Tele2 shares fell 13% since mid-June.
Why Kepler upgraded
In a note explaining the decision, Kepler said it expects Tele2 to convert modest service revenue growth into stronger earnings, forecasting low-single-digit end-user service revenue growth that should translate into mid-single-digit underlying EBITDAaL expansion. The brokerage also flagged potential extra upside tied to consolidation in the Swedish telecom market, where it estimates roughly 80% of Tele2's valuation originates.
Kepler identified a number of potential catalysts that could drive further upside. These include consolidation within Sweden, an increase in Freya's stake in Tele2 or a full bid from Freya, and accretive fixed-line acquisitions that might strengthen Tele2's position in converged services. The broker also described prospective single-dwelling-unit fibre regulation as "a modest positive," saying improved access to single-dwelling-unit households would be beneficial.
Balance-sheet returns if M&A stalls
Should merger and acquisition activity not come to pass, Kepler suggested Tele2 could utilize surplus balance-sheet capacity to return capital to shareholders through extraordinary dividends. The broker estimated such returns could be in the range of SEK5-10 per share per year.
Management and transition
Kepler noted that Nicholas Högberg assumed the role of chief executive on July 1. The broker said Högberg's past experience with Tele2 and continued board involvement from Jean Marc Harion should reduce transition risk and support continuity at the company.
Q2 and near-term forecasts
For the second quarter, Kepler forecast end-user service revenue growth of 3.2% in local currency, broadly consistent with the first quarter. The broker expects about 2.5% growth in Sweden and roughly 6% growth in the Baltics to underpin that figure. Underlying EBITDAaL growth is projected to slow to about 5% when excluding tower company effects; Kepler said that reflects the annualization of workforce-reduction savings and a more difficult year-on-year comparison in Sweden.
Free cash flow for the quarter is forecast at SEK1.5 billion, which Kepler said is SEK0.2 billion below the prior year. The brokerage attributed the shortfall to a working capital outflow after an unusually strong first-quarter inflow, which offsets higher earnings.
Estimate revisions and longer-term outlook
Overall, Kepler described its estimate revisions as limited. It flagged a roughly 1% uplift in underlying EBITDAaL tied to a change in LTIP definition and foreign exchange, and projected free cash flow to be up between 0-1%. The broker said spectrum-related updates were primarily a timing issue.
Looking further ahead, Kepler forecast like-for-like end-user service revenue growth of 3% for 2026 and EBITDAaL growth of 7%, with free cash flow rising by 6% that year. For the 2025-28 period the brokerage expects a compound annual growth rate of 3% for end-user service revenue, 5% for EBITDAaL and 5% for free cash flow.
Analyst view in brief
Kepler framed the upgrade as a vote of confidence in Tele2's cash-generation capability and the company's potential to benefit from consolidation in Sweden. The broker balanced those upside scenarios against risks including market de-rating, potentially value-destructive deals, and the possibility that consolidation momentum or growth could disappoint.