Upside related to further cost reductions - Q3 review

We believe the drop in InfraCom’s gross margin, which was the main explanation for the lower EBITA in Q3, is related to increased hardware sales, but also to the loss of service contracts and price pressure. There is clearly a need for both further cost reductions and improved control over the offerings to customers. We reiterate our fair value range of SEK15–30.

Sales mix not the only explanation. Despite sales being SEK7m higher than we had expected, EBITA came in SEK5m below our forecast. If this was only down to higher hardware sales, then the gross profit would have been similar in absolute amount. But SEK5m below leaves the service operation doing worse than expected. We estimate that this is related to lost contracts and price pressure. We doubt that it will change rapidly, but it might be mitigated by the cost reductions identified in the process of merging units.

Estimate revisions. Although hardware sales are not a one-off, they are not recurring revenue either. We see the higher hardware sales as more of an isolated event in Q3, leading us to reduce sales for 2027–28e, mainly due to price pressure and lost clients. This also affects the gross margin forecast negatively. We reduce opex due to already identified potential cost reductions. This leads us to reduce EPS by 8% in 2026e, 1% in 2027e and 2% in 2028e.

Impact from price pressure and client loss will last; profit turnaround requires cost cuts. The cost reductions identified are a positive, but we would caution against assuming that costs will fall quickly. We remember Infracom’s ambition from last year to cut costs, but opex has remained unchanged. We would also have liked to see a faster benefit from merging units, but we now expect this to happen in 2027 at the earliest.

Valuation. InfraCom is trading at a P/E of c5–6x for 2026e and 2027e vs peer medians of 16.6x and 14.4x, respectively. Our SEK15–30 fair value range equates to a 2027e P/E of 8–15x.