Danske Bank: Ericsson – Q1 21, initial reaction

Ericsson (MW): Ericsson has posted Q1 21 results this morning. On headline numbers a bit mixed with sales missing BBG consensus by around 5% at SEK49.8bn vs. SEK52.7bn, however adj. EBIT was a strong beat at some SEK5.3bn c. 6% above consensus. Overall, net sales grew 10% y/y (like-for-like), driven by strong performance in almost all divisions except managed services (8% decline y/y). The Networks segment (main segment) performed very strong despite lower IPR revenues with a 15% y/y growth like-for-like. As is customary, Ericsson did not provide a full-year outlook but wording on demand is still positive and Ericsson expects the overall market to ‘develop favourably’ in 2021. On the debt side we also note some positives as Ericsson was able to improve the reported net cash position by SEK4.6bn despite higher working capital (the level is now SEK43bn). Additionally there was a large SEK5.5bn decline in pension liabilities due to an increase in the discount rate, hence the adj. net cash position improved by slightly more than SEK10bn. We would not be surprised to see positive rating action on Moody’s Ba1 rating following this result. Overall a credit positive report in our view.