Both sales and adjusted EBITA came in below our forecasts due to a harsh Norwegian winter, hurting both Tessta and UBConnect. Sales was SEK646m (445), 9% below our expectations, and the organic growth was 1.1%. Adjusted EBITA was SEK37m (28), 23% below our expectations. Sweden had a strong Q1, growing 4.4% organically, which considering the structural downturn in copper, is a healthy level in our view. While Transtema does not disclose its EBITA margin for Sweden, management states it was solid. Also, assuming a very modest margin in the Norwegian business this quarter, Sweden must have done a solid quarter considering the group-level adjusted EBITA margin of 5.7% – still above most competitors.

From Q2 and onwards, as ground and 5G towers are free from ice and snow, we expect Transtema’s Norwegian business to pick up its operations at a solid rate. While UBConnect likely will see lower demand following some 5G installations being postponed into 2024, we believe there is an opportunity for Tessta to catch up on its fibre installations. Thus, while Transtema’s weather dependency might motivate a somewhat higher risk premium, we believe Transtema is on track for a solid full year in 2023.

We lower our Base Case to SEK52 (55) due to lowered estimates for 2023 and a slight reduction in our 2024 and onwards forecasts. However, we believe the >20% share price decline since the report is exaggerated. We believe Transtema is heading towards a solid 2023, and the current valuation of 5.8x and 4.6x EBITA 2023 and 2024 implies a significant upside, given that Transtema performs in line with our forecasts. Despite the somewhat lowered Base Case, it is roughly 2x the current share price.