Redeye maintains its positive view of Transtema following a Q4 showing a better q/q margin improvement than expected. Although Q1 2024 likely will be soft due to adverse weather, reduced costs, new deals, and a somewhat improving market, set Transtema for gradual improvements of margins and organic growth rates in 2024.

Improving Margins q/q Beating Our Forecast

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	2022	2023	2024e	2025e	2026e
Revenues	2,457.4	2,688.6	2,501.4	2,601.4	2,705.5
Revenue Growth	45.4%	9.4%	-7.0%	4.0%	4.0%
EBITDA	257.5	191.0	219.3	158.1	172.5
EBIT	154.5	58.5	98.8	111.3	128.8
EBIT Margin	6.3%	2.2%	4.0%	4.3%	4.8%
Net Income	117.9	139.6	45.9	55.6	69.3
EV/Sales	0.5	0.3	0.3	0.2	0.2
EV/EBIT	7.9	11.6	6.6	5.6	4.3

Significant q/q Margin Improvement Beating Our Expectations

We Expect a Rebound in 2024

New Base Case SEK29 (26)

Key financials

Improving Margins q/q Beating Our Forecast