Q4 2022 sales amounting to SEK382.8m, corresponding to approximately 2% y/y growth, which was largely in line with our expectations. The net customer intake of broadband customers via fibre turned negative at 1,900 q/q, while the gross margin fell short at 34.4% versus an estimated 35.3%, a slight decrease both y/y (36.8%) and sequential from 34.8% in Q3 2022. According to management, the gross margin has been affected by price hikes from the network owners, which is expected to continue in 2023. However, Bredband2 has offset it with its own price hikes.

Despite slightly lower OPEX offsetting the lower gross margin to some extent and recently suggested margin prioritising from management, the EBITDA margin amounted to 15.5% (16.4%), compared to an estimated 15.9%, while the EBIT margin came in at 6.1% (7.1%) compared to our expected 6.4%.

As such, Bredband2’s Q4 2022 came in largely in line with our sales expectations while showing slightly softer margins. We believe the somewhat lower margins stemmed from a decreased share of corporate sales as well as price hikes implemented in the middle of the quarter, implying an increased churn instantly (or even before, as customers are notified in advance) while not contributing to the sales fully in the quarter. 

According to management, prioritising margins is expected to have a sequential positive effect from here and onwards, which may continue to affect customer intake. However, management sees this as temporary, and looking further into 2023, Bredband2 aims to maintain solid margins while increasing its organic growth focus.

The increased margin prioritising is expected to come from several areas, such as the dynamics of price-based campaigns and marketing activities, margin-enhancing activities within certain customer segments and seeing over infrastructure since the merge with A3, thus reducing costs that way.

The total broadband customers via fibre amounted to 458,500 (435,500) by the end of Q4 2022. Despite the negative net customer intake of 1,900 in the quarter, Bredband2 growth witnesses ARPC improvements. As such, Bredband2’s price increase implemented in Q4 seems to offset the customer churn to some extent, which we like to see.

Despite the fact that it will gradually become harder to grow the customer base due to the market characteristics and competition, we see several ARPC growth drivers ahead, such as the structural demand for faster internet access, price hikes, and upselling from additional services. 

In addition, Telia recently announced further price hikes (two in 2022) for some of its broadband subscriptions via fibre in Sweden, with increases of 9-10%, which will be implemented from March 2023. As such, we believe this will make an interesting opportunity for lower-price suppliers like Bredband2 either to raise prices and still be one of the cheapest in the market or to retain price levels to attract further customers. However, bredband2 still needs to parry the price increase from the network owners, implying the need to pass on the costs to its customers to avoid squeezing margins.

Following Bredband2’s Q4 2022 report, we make minor 2023e and 2024e forecast adjustments. First, we lower our sales assumptions slightly for the period, corresponding to 1.5% (1.7%) and 2.3% (2.5%) y/y growth, respectively. This is due to our expectation of a somewhat softer customer intake going forward, while price hikes will offset that to some extent. Moreover, Bredband2 has, in combination with its margin prioritising, also stated an increased organic growth focus in 2023, which we believe will take part in the latter part of the year leading to stronger growth in H2. 

In addition, we decrease our 2023e and 2024e gross margin assumptions slightly while we also trim our OPEX assumptions for the same period. Altogether, it gives rise to a slightly lower EBITDA margin than previously, but still, a slight margin expansion compared to 15.8% in 2022. We argue that this is supported by management prioritising margins and continued internal efficiency improvements.

Our DCF renders a new fair value range due to the abovementioned forecast adjustments. Our new Base Case is SEK1.9 (2.0) per share, while our Bear and Bull Cases are SEK1.0 (1.2) and SEK2.5 (2.7), respectively. 

With a share that has headed south, Bredband2 is currently trading at historically low multiples, with an EV/lease adj. FCF of approximately 9x 2023e ( and an EV/EBITDA of ~5x).