Jefferies analysts said all eyes will be on Tele2's performance in Sweden when the operator reports its third-quarter earnings on Thursday.
The investment bank predicted that Tele2 Sweden will register a 1 per cent year-on-year rise in mobile revenues in the third quarter of 2016, marginally down from a 1.5 per cent year-on-year increase the operator achieved in the second quarter.
Third-quarter margins are tipped to stand at 33.7 per cent, broadly in line with the 33.9 per cent recorded in the third quarter of 2015 and up on the 30.7 per cent Tele2 registered in Sweden during the second quarter of 2016.
In an emailed statement, Jefferies analysts explained that the increase in mobile revenues in the recent quarter “would be a success as the comparable is much tougher”.
The analysts said that they focused on Tele2’s Swedish business because of “visibility issues in a number of operations.” Put another way, the decisions taken by Tele2’s management in Sweden are clearer and “look promising in a number of areas”, the analysts stated.
Tele2’s planned acquisition of TDC Sweden is one such promising move. Jefferies analysts said the deal will add value to Tele2’s operations “if ambitious, but not unrealistic, synergy targets can be met”. The operator aims to close the purchase by the end of October, after receiving European Commission clearance for the deal earlier in the month.
Jefferies analysts also praised Tele2’s “relative restraint in Dutch mobile” during the third quarter. Heavy investment in LTE in the Netherlands was a key factor in a heavy drop in Tele2’s second quarter earnings, when net profit fell by 60 per cent year-on-year, and EBITDA by 22 per cent.
While not going into detail on Tele2’s broader third quarter earnings, Jefferies analysts noted that a bottom-up model review has resulted in a slight increase in its full year 2016 and 2017 revenue forecasts. The analysts increased their estimates by between 1 per cent and 2 per cent -- excluding the effects of mergers and acquisitions, and foreign exchange fluctuations -- but cut its 2016 and 2017 EBITDA forecasts by 2 per cent.
Despite that short-term reduction, the analysts appear confident in Tele2’s long-term standing, increasing revenue estimates for 2018 by 17 per cent and EBITDA predictions by 6 per cent that year, when the synergy effects of the TDC Sweden acquisition are expected to begin paying off.