Redeye raised its Base Case and 2025 forecasts for Transtema following the recently announced large deal. At the same time, we expect a modest Q2 report. Nevertheless, we believe Transtema is set for solid growth and margin improvements from 2025 and beyond as several large deals kick in.

Yesterday, Transtema announced a two-year SEK500m deal (<a href="https://mfn.se/cis/a/transtema-group/transtema-tecknat-avtal-med-ett-uppskattat-ordervarde-om-ca-500-mkr-c974afc7">press release in Swedish</a>). The deal is from a Swedish telecommunication equipment provider – considering the deal size and Transtema’s history, we believe it must be Ericsson. Transtema has previously had a smaller share of this deal, and we assume the net impact on sales is about SEK200m annually. The deal runs from the autumn of 2024.

Transtema

* Transtema's revenue base is not well diversified, with a high dependence on key customers like Telia and Telenor, potentially impacting bargaining power and stability.
* The company's installation business has clear cyclical exposure, which could lead to revenue volatility during economic downturns.
* Transtema's competitive advantages are not easily identifiable or sustainable in the long term, given the nature of its service-based business model.
* The company's returns on invested capital are currently at a low level, potentially indicating challenges in value creation.
* Employee satisfaction appears to be low, with a negative eNPS score, which could impact productivity, talent retention, and overall company performance.

* Transtema benefits from secular tailwinds in digital communication, driving demand for its services and positioning it well for future growth.
* The company operates in a market with few dominant players, reducing competitive pressure and potentially allowing for better pricing power.
* Transtema's core business of installation, service, support, and maintenance for communication networks is unlikely to be disrupted, providing long-term stability.
* The company is proactively promoting environmental sustainability through initiatives like using renewable fuels and transitioning to electric vehicles.
* Transtema works closely with customers, fostering innovation and transparency in its business relationships.

* Return on Equity (ROE) below 20% for the last five years, suggesting inefficient use of shareholder capital.
* Earnings growth inconsistent and below historical averages, potentially impacting long-term valuation.
* Lack of consistent dividend growth and payments, limiting appeal for income-focused investors.

* Return on Assets outperforms industry average, suggesting superior asset utilization and profit generation.
* Consistent above-average revenue growth over the last five years, signaling market share gains and competitive strength.
* Healthy debt management with Net Debt less than two times Operating Cash Flow and five times Free Cash Flow.
* Efficient inventory management with inventory-to-sales ratio below 20% and its 5-year average.

* Management team's average tenure is slightly less than five years, potentially limiting institutional knowledge and continuity.
* Recent investments, particularly acquisitions in Norway, have not generated attractive returns on capital.
* Share count has increased over time without corresponding EPS growth, potentially diluting shareholder value.
* Less than 50% of board members have substantial holdings, potentially reducing alignment with shareholder interests.

* Strong leadership with a clear long-term vision, focusing on pan-Nordic presence, sustainability, and security in the telecom sector.
* Decentralized organization promoting accountability, with a well-defined strategic plan and consistent communication of company values.
* Transparent and timely investor communication, with management being candid about mistakes and focusing on long-term business value.
* Founder involvement as chairman and significant insider ownership (about 20%) demonstrate alignment with shareholder interests.
* Diverse board with relevant expertise in finance, entrepreneurship, and telecom, supporting the company's strategy and M&A ambitions.

SEKm	2023	2024e	2025e	2026e	2027e
Revenues	2,692.7	2,286.3	2,632.4	2,790.2	2,901.8
Revenue Growth	9.0%	-15.1%	15.1%	6.0%	4.0%
EBITDA	191.1	187.0	245.0	256.4	272.3
EBIT	58.6	55.1	115.2	128.2	143.0
EBIT Margin	2.2%	2.4%	4.4%	4.6%	4.9%
Net Income	171.9	31.0	83.7	93.8	105.3
EV/Revenue	0.3	0.4	0.3	0.2	0.2
EV/EBIT	12.6	15.5	6.5	4.9	3.5

Key financials

Major Deal Worth SEK500m Over Two Years