Q1 2023 net sales amounted to cSEK383m (SEK383m), implying largely flat y/y development while broadly aligned with our expectations of cSEK385m with a 1% deviation. The gross margin was lower than expected at 33.9% (35.7%) versus an estimated 34.8%, while net customer intake of broadband customers via fibre was negative 2,500 q/q. Despite the slightly softer sales and gross margin compared to our expectations, OPEX improvements offset this, leaving the EBITDA in line with our expectations, while the EBIT came in 5% above. As such, the EBITDA margin was 15.8% (16.4%) versus the estimated 15.6%, while the EBIT margin came in at 6.5% (7.1%) compared to the expected 6.2%.

According to management, the quarter’s focus has been on margins, which is expected to continue, heading to improve the EBIT margin by c1pp to Q4 2023. We appreciated seeing that the recent margin prioritisation is starting to pay off, despite, and as expected, coming at the expense of a continued negative net customer intake, which we believe resulted from the recent price hikes. However, Bredband2 expects increased sales in the coming quarters, stemming from price adjustments and additional salespeople hirings to continue centralising its corporate business.

We make minor 2023e and 2024e forecast adjustments on the back of Bredband2’s Q1 2023 report. We cut our sales forecasts marginally for 2023e–2024e, as well as our gross margin assumptions while this is offset by decreased OPEX forecast for the same period, leading to slightly increased margins. However, the minor forecast changes make our DCF leave our fair value range intact, with a Base Case of SEK1.9 per share and Bear and Bull Cases of SEK1.0 and SEK2.5, respectively. Currently, Bredband2 is trading at an EV/EBIT of 10x based on our 2023e and an EV/EBITA of 9x.