As expected, Q2 was hurt by a sharp decline in the demand for 5G installations, primarily affecting UBConnect (acquired in January 2023). However, the impact was somewhat larger than we expected, and the adjusted EBITA margin was 3.0%, below our expectations of 5.2%. Transtema´s other operations generally had a solid quarter, with most performing EBITA margins roughly in line with the 7% target. Sales was 3% below our expectations and grew by 14% y/y. Organic growth was -6%, following -9% organic growth in the Swedish business due to an accelerating shutdown of the copper network and a more challenging market in general. However, thanks to the Site Maintenance deal and momentum within EV-charging, we expect slightly better organic growth numbers going forward.

Since the announcement of the layoffs related to 5G (22 June), the order intake regarding 5G installation has improved. Transtema has received confirmed volumes for 2023/24, allowing the company to plan for the long term and secure solid profitability. We believe this is a sign of a stabilizing market, which, combined with the announced cost cuts, should take the 5G operations back to solid profitability. However, we do not expect any major profit contribution from the 5G business in the near term.

While the acquisition of UBConnect has been a drawback so far (where the relatively large earn-out lowers the downside risk), the combination of low valuation multiples and solid development in the remaining areas make our positive view unchanged. In addition, we expect gradual improvements at UBConnect. Also, management seems confident Transtema can return to the industry-leading 7% EBITA margin by ~2025. While lowering our Base Case from SEK47 to SEK42 on the back of reduced forecasts, our revised Base Case constitutes a significant upside to the current share price.