Telia Company Year-end Report January – December 2025

Telia reported Q4 revenue of SEK 21.3bn (flat nominally, +1.6% like‑for‑like) and service revenue +2.1% LFL; adjusted EBITDA rose 3.7% LFL but reported EBITDA fell to SEK 3.7bn (from 6.6bn) due to a SEK 3.7bn non‑cash ARO provision. Full‑year revenue was SEK 81.0bn (+1.8% LFL), adjusted EBITDA +5.2% LFL, EBITDA SEK 27.7bn (impacted by the ARO charge), net income SEK 4.3bn (EPS SEK 0.90), CAPEX ex‑spectrum SEK 12.8bn and free cash flow SEK 9.3bn. Management proposed a raised dividend of SEK 2.05/share, closed regulatory approvals for a SEK ~3bn Bredband2 acquisition, and issued 2026 guidance of ~2% service revenue growth, ~3% adjusted EBITDA growth and free cash flow around SEK 9bn, while flagging operational headwinds in Finland and Norway and workforce restructuring.

Analysis

Market structure: Telia (STO: TELIA) is emerging as a regional winner in Sweden and the Baltics driven by record consumer momentum, TV/broadband strength and early 5G SA commercialization; acquisition of Bredband2 (SEK ~3bn) reinforces broadband scale. Losers are incumbent Finnish players and Norway-exposed assets where enterprise and wholesale contract losses depress service revenue; pricing power in Sweden appears intact while contested Finnish/Norwegian markets imply margin pressure. Cross-asset: Telia’s stable leverage (1.93x) and improved FCF (~SEK 9–10bn target) should support credit spreads tightening unless ARO or cash-capex shocks recur; SEK FX sensitivity is modest but could strengthen on dividend confidence.

Risk assessment: Key tail risks are (1) repeated non-cash ARO adjustments (another SEK ~3–4bn style hit), (2) failure to divest Latvia or cost-savings from 600-job restructuring not materializing, and (3) a deeper-than-expected Finland enterprise decline. Timing: immediate market reaction around Bredband2 closing (Q1 2026) and AGM dividend approval; medium-term (next 6–12 months) risk is working capital normalization that could reduce FCF; long-term (2027) depends on successful turnaround in Finland/Norway. Hidden dependency: Q4 FCF was unusually helped by customer early payments and inventory moves — a reversion would remove ~SEK several hundred m of cushion. Catalysts: Q1 2026 results, Latvian divestment outcome, and union negotiations outcomes within 3–6 months.

Trade implications: Bias to modest long exposure to TELIA ahead of Q1 close and AGM given adjusted EBITDA growth and dividend trajectory — target 12-month upside >15% if Sweden/Baltics momentum persists and FCF guidance holds. Pair trade: long TELIA vs short Finnish peer (HEL:ELI1V) to isolate Sweden/Baltic outperformance vs Finland weakness over 3–12 months. Options: use asymmetric exposure — buy 12-month TELIA calls ~5–10% OTM sized small (0.3–0.6% NAV) or sell 3–6 month cash‑secured puts 5% OTM to collect premium and set a lower entry. Rotate out if working capital normalizes and FCF guidance falls >25% vs outlook.

Contrarian angles: The market may overreact to the SEK 3.7bn ARO non-cash headline and EPS drop; adjusted EBITDA and cash metrics show operational strength — a mispricing exists if investors focus on GAAP EPS rather than FCF. Historical parallel: telecoms that took one‑time environmental/asset charges recovered when underlying FCF remained intact (e.g., post-restructuring recoveries at European telcos). Unintended consequence risk: aggressive cost cuts (600 cuts) could transiently harm customer satisfaction and ARPU; watch NPS and churn over next 2 quarters as an early warning that cuts are destructive rather than accretive.

Key Decisions for Investors

• Establish a 2–3% portfolio long position in Telia Company (STO:TELIA) within 30 days, target 12-month total return +15% (dividend + price); set hard stop-loss at -15% and trim to half if leverage drifts above 2.5x or FCF guidance for 2026 falls below SEK 7bn.
• Implement a relative-value pair: long TELIA (1.5% NAV) vs short Elisa (HEL:ELI1V) (1.0% NAV) for a 6–12 month horizon to capture Sweden/Baltic outperformance vs Finland; close if Elisa outperforms by >10% or Telia underperforms by >8%.
• Deploy options for asymmetric upside: buy 12-month TELIA calls ~5–10% OTM sized 0.3–0.6% NAV OR sell 3–6 month cash‑secured puts 5% OTM to collect premium and acquire stock at a lower basis; exit if implied vol rises >30% or post-Q1 implied move exceeds premium captured.
• Reduce direct exposure to Finnish telecom risk: if portfolio Finnish-telco exposure >2% reduce to <=1% by trimming Elisa/DNA positions by 25–50% within 60 days; reallocate proceeds to TELIA or cash if Latvian divestment is delayed beyond Q2 2026.