Ericsson is one of two Western leaders in mobile-network (RAN) equipment, paired with a high-margin essential-patent IPR franchise and an enterprise arm (Cradlepoint, Vonage remnant). The full-manual footnote pass corrects the quality leg of the thesis: adjusted ROIC is 22.7% on SEK 100.6b of invested capital — genuine value creation (EP +SEK 14.8b at 8% WACC), not the 73% net-cash artifact the prior streamlined note rightly distrusted.
LTM adjusted NOPAT of SEK 22.9b strips the one-off SEK 7.9b iconectiv divestment gain and normalizes chronic restructuring conservatively — a SEK 2.3b run-rate stays in opex; only the SEK 3.5b Q1'26 programme excess is added back (we reject the company's full add-back). Q1 2026 organic sales grew +6% with all segments growing; the reported -10% and the margin dip to 10.6% adjusted EBIT were FX (SEK -7.8b), not demand — mid-cycle recovery off the restructuring trough, not a peak.
The setup improved: at 105.55 the equity trades at 12.4x EV/adjusted NOPAT with an 8.5% FCF yield and SEK 68.1b net cash (~19% of market cap) funding a SEK 15b buyback from April 2026 on top of 10b dividends. The offset is unchanged and structural — a flattish RAN market (company-confirmed in the Q1 outlook), lumpy IPR, and 2026 restructuring guided at elevated levels.
EV SEK 283.7b against manual-verified adjusted NOPAT 22.9b is 12.4x (8.1% NOPAT yield) for a 22.7%-ROIC franchise with net cash — the market pays a mature-cyclical multiple for a value-creating one. Conservative base assumes a flattish RAN market and no rerating heroics: low-single-digit NOPAT growth from cost-out and buyback accretion, IPR flat.
Base SEK 130 (+23%): ~15x forward adjusted NOPAT ex-cash plus net cash of ~SEK 20/share; trimmed from the prior 135 since the run-rate loses iconectiv's ~1.0b annual earnings and 2026 restructuring stays elevated. Bull SEK 165 (adjusted EBIT margin recovers to mid-teens, strong IPR-renewal cycle, buyback shrinks the count). Bear SEK 85 (RAN decline plus full restructuring recurrence compress NOPAT toward ~19b; GCP goodwill write-down crystallizes).
The market pays today’s enterprise value for roughly -6.3% NOPAT growth over 5 years. The business earns 23% on capital against a 8% cost of capital (spread +14.7 pp); the no-growth value is SEK 125/share (119% of price), so the rest is priced-in growth.
| Scenario | 24m target | Impl. g | Upside | Prob. | Driver |
|---|---|---|---|---|---|
| Bull | SEK 165 | +10% | +56% | 30% | Mid-teens adjusted EBIT margin + strong IPR cycle + buyback accretion |
| Base | SEK 130 | +1% | +23% | 45% | Flattish RAN; cost-out + buyback; ~15x fwd NOPAT ex-cash + net cash |
| Bear | SEK 85 | -15% | -19% | 25% | RAN decline, restructuring recurs in full, GCP goodwill write-down |
| Prob-weighted | SEK 129 | — | +22% | 100% | Scenario-weighted expected value |
| WACC \ g | 0% | 3% | 5% | 8% | 10% | 15% |
|---|---|---|---|---|---|---|
| 6.50% | 163 | 180 | 192 | 211 | 226 | 265 |
| 7.25% | 141 | 154 | 164 | 180 | 191 | 222 |
| 8.00% (base) | 125 | 136 | 144 | 156 | 165 | 190 |
| 8.75% | 113 | 122 | 129 | 139 | 146 | 167 |
| 9.50% | 104 | 111 | 117 | 125 | 131 | 148 |
Green = fair value above the current price of SEK 105.55. The reverse-DCF conclusion is dominated by WACC and growth — see the whole surface, not a single fair value.
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Manual tier confirms 22.7% adjusted ROIC and EP +SEK 14.8b — the quality leg of the thesis is now evidence, not a proxy.
Q1'26 organic sales +6% with all segments growing; the reported decline was SEK strength, not demand.
SEK 15b buyback (from Apr 2026) + 10b dividends on 68b net cash and 30b LTM FCF before M&A.
High-margin essential-patent franchise provides resilient, if lumpy, cash flow into 5G/6G renewals.
The Q1'26 SEK 3.8b headcount-reduction charge lifts the margin floor once digested; R&D discipline without capitalization games.
THESIS-CHECK: the June streamlined call (HOLD slight-positive, base 135 at 127) rested on cheap-on-earnings while distrusting a 73% ROIC proxy. The manual pass verifies the quality leg — real ROIC 22.7%, EP +14.8b — while the price fell 17% on FX optics against +6% organic growth. The thesis holds and strengthens; the call flips HOLD→BUY on the wider discount. Base re-derived at SEK 130 (vs 135) since the run-rate loses iconectiv's ~1.0b earnings stream and restructuring stays elevated into 2026.
Conviction stays MEDIUM: a flattish RAN market, restructuring recurrence, thin GCP goodwill headroom and two unquantified regulatory tails cap the score. Rated through-cycle as a recovering cyclical, not a compounder — the buyback and 8.5% FCF yield pay you to wait.
Every adjustment traces to the cited note/page in the source filing — click to open it there. Annual report / 10-K: 📄 open · Latest interim: 📄 open
| Adjustment / figure | Value | Source | Why mttssn treats it this way |
|---|---|---|---|
| FY2025 net sales / EBIT (LTM anchor) | revenue 236,681; EBIT 38,634; net income 28,714 | Consolidated income statement, p.29 (printed) 📄 p.33 | FY2025 anchor for the LTM build: LTM = FY2025 - Q1 2025 + Q1 2026. |
| Q1 2026 / Q1 2025 income statement | Q1'26 sales 49,332, EBIT 1,443, NI 887; Q1'25 sales 55,025, EBIT 5,931, NI 4,217 | Condensed consolidated income statement, Q1 report p.16 📄 p.16 | Quarter added / subtracted for LTM: revenue 230,988, EBIT 34,146, net income 25,384. |
| LTM restructuring charges 5,824 | Q2'25 656 + Q3'25 303 + Q4'25 1,097 + Q1'26 3,768 (Q1'25 comparator 281) | APM: items excluding restructuring charges, Q1 report p.33-34 📄 p.34 | Ericsson restructures chronically (2,337 in FY2025; 5,012 in 2024; 6,521 in 2023), so mttssn keeps a 2,337 run-rate in opex and adds back only the Q1 2026 programme excess: 5,824 - 2,337 = +3,487 pre-tax. |
| FY2025 restructuring by function 2,337 (Note B3) | cost of sales 1,277 + R&D 579 + SG&A 481 = 2,337; capitalized development additions -1,138 vs R&D expense 48,852 | Note B3 Expenses by nature, p.44 (printed) 📄 p.48 | Verifies the FY2025 restructuring run-rate used in the normalization and confirms the ~2% R&D capitalization rate that makes an R&D reversal unnecessary. |
| iconectiv divestment gain (removed) | net gains on investments and sale of operations +7,886 (gains 8,489, losses -603), of which iconectiv +7.6bn | Note B4 Other operating income and expenses, p.44 (printed) 📄 p.48 | One-off disposal gain inside FY2025 EBIT (segment Enterprise); not operating profit, removed from adjusted NOPAT (-7,886 pre-tax). The company's own Adjusted EBIT keeps it - bridged like-for-like by removing it from both sides. |
| iconectiv divestment detail (Note E2) | divested Aug 2025 (83.3% owned); cash proceeds 11,200; net assets disposed 3,295; net divestment gains 7,905 incl. liquidated subsidiaries; iconectiv contributed ~1.0bn to 2024 net income | Note E2 Business combinations, p.53-54 (printed) 📄 p.58 | Full divestment-gain composition confirms the -7,886 removal. Acquisition side is clean: only the Aduna associate investment (516m, net cash out 264m) in 2025 - no business combinations, no PPA fair-value uplifts, no earn-outs. Removing the gain also removes iconectiv's ~1.0bn/yr earnings from nothing - the run-rate quietly loses that stream, flagged qualitatively. |
| Goodwill by CGU + impairment-testing assumptions (Note C1) | total goodwill 46,882 (FY2025): Networks 26.2bn / Cloud SW&S 3.3bn / Enterprise 17.5bn, of which Vonage-GCP 9.1bn + Cradlepoint-EWS 8.3bn; post-tax WACC 10.5/10.5/13.5/12.0%, terminal growth 2.0/1.5/3.5/3.5%; GCP headroom 2.7bn; iconectiv goodwill 1.1bn derecognized | Note C1 Intangible assets, p.46-47 (printed) 📄 p.50 | Addresses escalation reason 2: the Vonage remnant is 9.1bn (not 48.6bn - that is total group goodwill). GCP is the only CGU without comfortable headroom: recoverable exceeds carrying by just 2.7bn; -2.5pp long-term EBIT margin or +1.6pp WACC erases it, and the VIU assumes >15% 5-yr revenue CAGR at 13.5% WACC / 3.5% terminal growth. Forward impairment risk flag; no LTM distortion (only FY2025 impairment was -77m in EWS, immaterial). |
| Company Adjusted EBIT LTM 39,970 | Q2'25 7,047 + Q3'25 15,454 + Q4'25 12,258 + Q1'26 5,211 | APM: Adjusted EBIT, Q1 report p.33-34 📄 p.34 | Ericsson's Adjusted EBIT = EBIT excluding all restructuring (definition verified in FY APM section p.172-173). Bridge comparator = 39,970 less the 7,886 non-recurring disposal gain = 32,084; our 30,347 diverges -5.4% (restructuring run-rate judgment + past-service one-off). |
| APM definitions (FY, section p.172-176) | Adjusted EBIT = EBIT excl. restructuring; EBITA additionally excl. amortization of acquired intangibles (FY2025: 1,898); FCF before M&A = CFO less net capex, product development, other investments, lease repayments (FY2025: 26,769) | Alternative performance measures, p.172-176 (printed) 📄 p.176 | Confirms the company APM frames. mttssn anchors on Adjusted EBIT (not EBITA - PPA amortization is a real cost of acquisitive growth) and uses company-defined FCF before M&A as the FCF measure. |
| PPA amortization LTM 1,521 (kept in opex) | FY2025 1,898 - Q1'25 721 + Q1'26 344 | APM: EBITA reconciliation, Q1 report p.34-35 📄 p.35 | Ericsson's EBITA adds back amortization of acquired intangibles; mttssn keeps it in opex as a real cost of acquisitive growth (we anchor on the Adjusted-EBIT frame, not EBITA). |
| Income taxes incl. Pillar Two (Note H1) | FY2025 tax expense 9,588, ETR 25.0% (2024: 85.6% on non-deductible goodwill impairment); Pillar Two tax expense -61 (2024: -53); net deferred tax asset 16,699; recognized loss carry-forwards 23,153 (tax value 5,070, of which Sweden 3,711) | Note H1 Taxes, p.73-74 (printed) 📄 p.77 | Pillar Two is immaterial (-61m, <1% of tax expense) - no adjustment. The 24.66% LTM effective rate used for NOPAT is structurally representative (Swedish 20.6% + foreign rate mix + withholding). Large Swedish loss carry-forwards shelter future cash taxes. |
| Provisions & restructuring cash (Note D1) | total provisions 8,684 (2024: 11,715); restructuring provision 1,889 closing, additions 2,011, utilization -3,572; total charged to income statement 5,481 | Note D1 Provisions, p.50 (printed) 📄 p.54 | Restructuring PAID via provisions (3.6bn) exceeded FY2025 charges (2.3bn) - cash catch-up from the 2023-24 programmes. Confirms restructuring is a recurring cash phenomenon, supporting the run-rate-retention judgment over the company's full add-back. |
| Contingent liabilities & disputes (Note D2 + A2) | contingent liabilities 4,091 (2024: 3,559; Q1'26: 4,223): IPR litigation, subsidiary tax litigation, pension guarantees, customer-contract losses; SAMR China patent-licensing investigation unquantified; DOJ Iraq-related investigation ongoing, scope and duration uncertain | Note D2 Contingent liabilities, p.51 + Note A2, p.39 (printed) 📄 p.55 | Two unquantifiable regulatory tails sit outside the 4.1bn disclosed amount: SAMR (China, patent licensing - behavioral and financial remedies possible) and the post-monitorship DOJ investigation into Iraq-related conduct. No provision adjustment possible or warranted; encoded as qualitative risk. |
| Pensions: funded status & assumptions (Note G1) | DBO 73,706, plan assets 57,826, net deficit 15,880 (BS provision 18,648 at FY2025); Sweden discount rate 3.0% (2024: 2.4%), IAS 19 funding 72%; actuarial gains 6.3bn in 2025; UK 87% annuitized via buy-ins; India Labour Code past-service cost 0.6bn + EPFO settlement loss 0.1bn | Note G1 Post-employment benefits, p.62-65 (printed) 📄 p.66 | Deficit is real deployed capital -> 18,224 (Q1'26 BS) stays in IC. The India Labour Code past-service cost 0.6bn is a one-off regulatory catch-up charged to operating cost in Q4 2025 (inside LTM) -> added back (+600); the 0.1bn settlement loss sits in financial expenses (no adjustment). India service cost guided +82% in 2026 - the recurring level rises. |
| Pension net interest sits below EBIT (Note F2) | net interest on pension liabilities -681 and lease interest expense -402 both inside financial expenses; financial net -332 | Note F2 Financial income and expenses, p.60 (printed) 📄 p.64 | Confirms pension_net_interest_reclass = 0 and no lease-interest add-back: both financing costs are already below EBIT, so the NOPAT base is clean. Section F otherwise unremarkable for adjustments: hedging effects flow through OCI reserves (stripped from IC via OCI) and financial net. |
| Leases immaterial (Note C3) | ROU net 6,738 (real estate 6,337, vehicles 400); lease liabilities 7,561 (FY2025); lease cost 2,968 of which interest 402; low-value 291 + variable 203 | Note C3 Leases, p.49 (printed) 📄 p.53 | Confirms the streamlined lease call: ROU ~2.4% of total assets (offices/sites/vehicles - peripheral), residual off-IFRS-16 leases <1.5% of EBIT -> lease_liabilities_in_ic = false, operating_lease_eva_split = 0. |
| Customer finance commitments (Note D4) | commitments for customer finance 55.9bn (2024: 47.7bn), of which 32.9bn due <1 year; purchase obligations 35.8bn (2024: 22.1bn) on supply-chain resilience | Note D4 Contractual obligations, p.51 (printed) 📄 p.55 | Growing off-balance-sheet vendor-financing exposure (+17% YoY) - not an IC adjustment (undrawn commitments), but a credit-cycle risk marker for a telecom-equipment vendor; flagged qualitatively. |
| Q1 2026 balance sheet (IC snapshot) | equity 103,133 (NCI 692); borrowings 21,541 + 9,865; post-employment benefits 18,224; cash 52,315; lease liabilities 7,884; goodwill 48,627 | Condensed consolidated balance sheet, Q1 report p.17 📄 p.17 | Latest-interim snapshot for invested capital: IC = equity_ex_oci 98,627 + IB debt 31,406 + pension 18,224 - excess cash 47,695 = 100,562. |
| Accumulated OCI ~4,506 (stripped from equity) | FY2025 reserves 2,839 (translation 1,254 + hedge 2,064 + revaluation -479) + Q1'26 OCI moves ~+1,667 | Consolidated balance sheet equity section, p.30 (printed) + Q1 comprehensive income p.16 📄 p.34 | FX-translation, hedge and borrowing-revaluation reserves are not operational investment decisions; stripped so IC reflects deployed operating capital. Note E1 confirms pension remeasurements (+5,373 in 2025) go to retained earnings, not reserves - correctly left in equity. |
| FY2025 segment mix | Networks 151,014 sales / 29,809 EBIT; Cloud SW & Services 62,715 / 5,996; Enterprise 21,117 / 3,239; Other 1,835 / -410 | Note B1 Segment information, p.41 (printed) 📄 p.45 | Networks carries the group (19.7% EBIT margin); Enterprise EBIT includes the iconectiv gain - confirms the disposal-gain removal is an Enterprise one-off. |
| Zero impairments in LTM window | Q1 2026 APM table: impairment of goodwill and intangible assets = 0 for Q1'25, Q2'25, Q3'25, Q4'25 and Q1'26 | APM: items excl. restructuring and impairments, Q1 report p.34 📄 p.34 | Verifies post_tax_addbacks = 0: the Vonage impairments (31.9bn 2023, 14.7bn 2024) predate the LTM window; FY2025's -77m EWS intangible charge is immaterial. |
| Free cash flow before M&A LTM 29,986 | FY2025 26,769 - Q1'25 2,704 + Q1'26 5,921 | APM: Free cash flow before M&A, Q1 report p.38; FY APM p.174 (printed) 📄 p.38 | Company-defined FCF before M&A used as the primary FCF measure; strong LTM cash conversion (~13% of sales). FY2025 FCF after M&A 37,308 includes the 11.4bn iconectiv proceeds - one-off, hence the before-M&A measure. |
How the mttssn view has evolved — each prior dated note is preserved.