Strong top line hurt by weak gross margin - Q3 initial

InfraCom reported sales 4% above our forecast, driven by Managed Services. However, with the beat mainly reflecting hardware sales, this had a negative impact on the gross margin, leaving EBITA 26%, or SEK6m, below our forecast. Still, by merging units, CEO Bo Kjellberg stated that larger cost reductions have been identified and are expected to have a significant impact on results ahead.

Q3 in more detail. Communications sales were in line with our expectations, but with a weaker gross margin, leaving earnings 23% below our forecast. Managed Services saw organic growth of 5% Y/Y, its first positive growth since Q4 2024, but largely explained by low-margin hardware sales, leaving the gross margin at 38%, clearly weaker than in previous quarters; hence, EBIT was 35% weaker than expected. The two other units were merged into one; the new unit fell short of our sales expectation, but with losses as expected. Cash flow was positive, leaving the balance sheet in better shape than after Q2 2026. Net debt to EBITDA was at 0.6x, versus 0.7x after Q2 2026.

Further cost reductions identified – and needed. InfraCom’s current performance is well under its financial targets of 15–20% sales growth and an EBITA margin of 12–15%. We believe gathering the operational units under one roof should lead to further cost efficiencies; this could be seen as early as in Q4 2026, but more importantly during 2027, which we believe is key for the equity story. While the Q3 top-line performance was good (+4% Y/Y), it was driven by low-margin hardware sales, and we believe the company will thus have to focus on aligning the cost base with current market conditions. We also believe that additional M&A, to further drive the top line, may not happen until the cost base is in order.

Valuation. Our fair value range of SEK15–30 is based on a peer, DCF and M&A valuation.