Ericsson is a top-two ex-China radio-access-network vendor plus a large essential-patent licensing business and a loss-making Enterprise/CPaaS unit. On adjusted LTM Q2 2026 numbers it earns SEK 26.1bn of adjusted EBIT (11.5% margin) and 19.6bn of NOPAT after tax — stripping only the one-off SEK 7.6bn iconectiv disposal gain (company-disclosed, FY note B4/E2) while keeping recurring restructuring (5.8bn) and acquired-intangible amortization (1.5bn) in opex. That yields adjusted ROIC of 17.4% against an 8% WACC and economic profit of +SEK 10.6bn on a 112.4bn invested-capital base — solid, mid-band value creation for telecom equipment, well above the cost of capital despite 49.4bn of goodwill and 18.0bn of net pension in the denominator.
The reported picture is noisier than the run-rate. FY2025 reported EBIT of 38.6bn was flattered by the iconectiv gain; LTM revenue is -6% YoY to 227.5bn with Q2'26 organic -1%, driven by lumpy IPR licensing (3.4bn vs a settlement-boosted 4.9bn a year prior). The genuine operating story is a Mobile Networks gross-margin recovery (Q2 adjusted GM 48.4%, Networks 50.4%) and Cloud Software adjusted EBITA margin expansion to 12-13%, offset by a loss-making Enterprise segment post-iconectiv. The July-2026 licensing agreements (a top-10 smartphone vendor + a payment-terminal vendor) lift the annualized IPR run-rate to ~SEK 13.5bn — a structural positive for Networks margin, not yet fully in the LTM print.
The balance sheet is the standout: net cash of SEK 59.8bn (gross cash + securities 91.3bn), funding the largest shareholder-return posture in Ericsson's history — SEK 8.2bn returned in Q2 including 3.2bn of buybacks, and the dividend raised to 3.00. Set against that: the Vonage acquisition was a capital-allocation error (-31.9bn 2023 / -14.7bn 2024 impairments), Enterprise's Global Communications Platform CGU carries only SEK 2.7bn of impairment headroom (a 2.5pp lower long-term margin or 1.6pp higher WACC wipes it out), CEO Ekholm retires 30 Sep 2026, and unquantified contingencies (US DOJ Iraq, ATA civil suits, China SAMR) sit off the model.
On the adjusted op frame, capitalizing NOPAT of SEK 19.6bn at the 8% WACC with zero growth gives a fair EV near 244bn; adding the 59.8bn net-cash pile lifts fair equity to ~304bn, or roughly SEK 90/share against the 97.9 market price. The market EV of 270bn (7.2% NOPAT yield) therefore already prices a modest growth path and the incoming IPR uplift — the price sits slightly above conservative fair value with no margin of safety, though the fortress balance sheet and 3.00 dividend cushion the downside.
Base SEK 95 (-3%): the IPR run-rate step-up and Networks margin recovery offset softening volumes; ROIC-WACC spread holds but the price already reflects it. Bull SEK 125 (+28%): the ~13.5bn IPR annuity plus a 5G/AI-connectivity capex re-acceleration and Enterprise turning break-even re-rate the multiple. Bear SEK 72 (-26%): operator-capex compression and Chinese-vendor share gains compress Networks gross margin, Enterprise/Vonage takes a fresh impairment, and the EV converges toward the reverse-DCF floor — the net cash and dividend do the waiting.
The market pays today’s enterprise value for roughly -2.5% NOPAT growth over 5 years. The business earns 17% on capital against a 8% cost of capital (spread +9.4 pp); the no-growth value is SEK 104/share (106% of price), so the rest is priced-in growth.
| Scenario | 24m target | Impl. g | Upside | Prob. | Driver |
|---|---|---|---|---|---|
| Bull | SEK 125 | +8% | +28% | 30% | IPR ~13.5bn annuity + Networks margin step-up + Enterprise to break-even re-rate |
| Base | SEK 95 | -4% | -3% | 45% | Roughly flat: IPR uplift offsets soft volumes; price already reflects the spread |
| Bear | SEK 72 | -16% | -26% | 25% | Operator-capex compression + China share gains + fresh Vonage impairment toward rDCF floor |
| Prob-weighted | SEK 98 | — | +0% | 100% | Scenario-weighted expected value |
| WACC \ g | 0% | 3% | 5% | 8% | 10% | 15% |
|---|---|---|---|---|---|---|
| 6.50% | 135 | 147 | 156 | 171 | 181 | 210 |
| 7.25% | 117 | 127 | 134 | 145 | 153 | 175 |
| 8.00% (base) | 104 | 112 | 117 | 126 | 132 | 149 |
| 8.75% | 94 | 100 | 105 | 112 | 117 | 130 |
| 9.50% | 86 | 91 | 95 | 101 | 105 | 115 |
Green = fair value above the current price of SEK 97.90. The reverse-DCF conclusion is dominated by WACC and growth — see the whole surface, not a single fair value.
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July-2026 agreements lift annualized recurring IPR to ~SEK 13.5bn; high-margin, structural uplift to Networks.
Adjusted gross margin 48.4% (Networks 50.4%); Mobile Networks GM recovery is the genuine operating story.
Net cash SEK 59.8bn funds 8.2bn/quarter of returns (3.2bn buybacks) and the raised 3.00 dividend.
Any re-acceleration in operator RAN spend or AI-driven connectivity demand flows straight to volumes.
Cloud Software & Services adjusted EBITA margin up to 12-13%; the software mix improves through-cycle economics.
Ericsson is a genuinely value-creating telecom-equipment franchise on the adjusted frame — ROIC 17.4% over an 8% WACC, economic profit +SEK 10.6bn, a fortress 59.8bn net-cash balance sheet and a growing IPR annuity — once the one-off iconectiv gain is stripped and recurring restructuring is left in opex. The problem is price: at 97.9 the EV already capitalizes NOPAT near fair value, leaving no margin of safety while revenue softens -6% and a management transition looms. HOLD, medium conviction; base SEK 95.
We turn constructive nearer SEK 72-80, where the EV approaches the reverse-DCF floor and the ~13.5bn IPR annuity plus the dividend genuinely get paid for; the bull path is an IPR-led Networks margin step-up with Enterprise reaching break-even. Chasing the FY2025 gain-flattered headline at full price is the error to avoid.
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 |
|---|---|---|---|
| LTM net sales 227,547 | 227,547 | Condensed income statement - isolated quarters, p.20 📄 p.20 | LTM = Q3'25 56,239 + Q4'25 69,285 + Q1'26 49,332 + Q2'26 52,691 = 227,547. Cross-checks the company's rolling-4Q net sales 227,546 (p.35, rounding). Ties to FY2025 236,681 - H1'25 111,157 + H1'26 102,022. |
| LTM EBIT 33,674 | 33,674 | Condensed income statement - isolated quarters, p.20 📄 p.20 | Sum of quarterly EBIT 15,151 + 11,161 + 1,443 + 5,919. Q3'25 EBIT 15,151 carries the iconectiv gain (Enterprise Q3'25 EBIT +6,649 vs -0.9/-1.5/-1.2bn other quarters, p.26). Company rolling-4Q EBIT 33,675 (p.36), rounding. |
| LTM income tax 8,176 / net income 24,834 | 8,176 | Isolated quarters, p.20 📄 p.20 | Tax LTM = 3,639+2,510+362+1,665. Net income LTM = 11,300+8,571+887+4,076 = 24,834. Effective LTM tax on income-after-financials ~24.7%, consistent with FY2025 25.0% (FY note B9 reconciliation p.65). Company guides 29% FY2026 tax rate due to elevated restructuring (Q2'26 p.3). |
| iconectiv disposal gain -7,600 (normalized out) | -7,600 | Note B4 p.44 + Note E2 p.61 (business combinations/divestments) 📄 p.44 | SEK 7.6bn one-off capital gain on iconectiv divestment (83.3%-owned US Enterprise subsidiary, sold Aug 2025 for SEK 11,200 cash proceeds; net assets disposed 3,295; note E2). Non-operating; removed from adjusted EBIT/NOPAT. iconectiv's 2024 net-income contribution was ~SEK 1.0bn (note E2). |
| LTM restructuring 5,769 (KEPT, not added back) | 5,769 | Rolling-4Q restructuring (Q2'26 p.35) = Q3'25 303 + Q4'25 1,097 + Q1'26 3,768 + Q2'26 601 (per-quarter totals p.34) 📄 p.35 | Company rolling-4Q restructuring at Q2'26 = 5,769 (p.35). Recurs materially 4-of-5 years (FY 549/399/6,521/5,012/2,337; p.170) and guided 'elevated' for 2026 (p.8) -> structural, left in opex per mttssn industrial rule. This is the primary gap vs Ericsson's headline Adjusted EBIT which strips it. |
| Acquired-intangible amortization LTM 1,507 (rejected add-back) | 1,507 | EBITA reconciliation, 'Amortizations and write-downs of acquired intangibles', p.35 📄 p.35 | LTM 365+440+344+358 = 1,507 (nearly all Enterprise: 338+406+307+327 = 1,378). FY2025 was 1,898 (p.35 Jan-Dec). Kept in opex; mttssn rejects EBITA-to-EBIT add-back. Company guides ~SEK 0.4bn/quarter Enterprise amort (p.8). |
| Equity Jun 30 2026 104,764 (NCI 718) | 104,764 | Condensed consolidated balance sheet, p.18 📄 p.18 | Stockholders' equity 104,047 + NCI 718. Cross-check changes-in-equity roll (p.20): opening 110,264 + TCI 7,757 - buybacks 3,307 + LTV 88 - dividends 10,037 = 104,764. |
| Interest-bearing debt 31,458 | 31,458 | Borrowings non-current 21,990 + current 9,468, p.18 📄 p.18 | Added to IC. Excludes lease liabilities (8,020) which are kept off operating IC. |
| Net pension liability 18,008 | 18,008 | Post-employment benefits BS line, p.18 (funded status detail FY note G1 p.64-66) 📄 p.18 | Added to IC. FY2025 net DBO deficit was 15,880 (DBO 73,706 - plan assets 57,826; note G1 p.65); BS liability 18,648 FY / 18,008 Jun'26 is higher due to special payroll tax + asset ceiling. Swedish discount rate 3.0% (FY note G1 p.66); weighted-avg DBO duration 16.9y. If discounted on covered mortgage bonds the liability would be ~9.9bn i.e. 8.1bn lower (Q2'26 p.7) - discount-rate sensitivity flagged. |
| Cash 41,691 / excess 37,140 / operational 4,551 | 41,691 | Cash and cash equivalents, p.18 📄 p.18 | operational_cash = 2% x LTM revenue 227,547 = 4,551; excess 37,140 subtracted from IC. Separately, interest-bearing securities 49,606 (current 12,413 + non-current 37,193) are excluded from operating IC entirely (gross cash 91,297, net cash 59,839; p.36). |
| Goodwill 49,371 (Jun 30 2026); FY2025 46,882 by CGU | 49,371 | Intangible assets, p.18; CGU allocation FY note C1 p.46 📄 p.18 | Jun'26 carrying 49,371 (up from 46,882 FY on FX). FY2025 goodwill 46.9bn by CGU: Networks 26.2bn, Cloud SW&S 3.3bn, Enterprise 17.5bn (Global Communications Platform/Vonage 9.1bn + Enterprise Wireless Solutions/Cradlepoint 8.3bn). Enterprise = highest estimation-uncertainty CGU: Global Communications Platform recoverable exceeds carrying by only SEK 2.7bn - a 2.5pp lower long-term EBIT margin OR 1.6pp higher WACC eliminates the headroom (note C1 p.47). Post-tax discount rates: Networks/Cloud 10.5%, GCP 13.5%, EWS 12.0%. |
| Adjusted NOPAT 19,556 | 19,556 | Derived: (EBIT 33,674 - iconectiv 7,600) x (1-0.25) 📄 p.20 | adjusted_ebit_ours 26,074 x (1-tax 0.25) = 19,556. Restructuring 5,769 and PPA amort 1,507 deliberately NOT added back. |
| IPR licensing revenue swing (LTM/quarterly) | 3,400 | Group results + market-area IPR line, p.2/p.4 📄 p.2 | IPR licensing highly lumpy: Q2'26 3.4bn vs Q2'25 4.9bn (-30%; prior year had a patent-dispute partial settlement). H1'26 6.5 vs 8.0bn. 82% of IPR now booked in Networks. Post-July-2026 agreements (top-10 smartphone vendor + payment-terminal vendor) lift annualized recurring IPR to ~SEK 13.5bn (p.8) - a structural swing factor for Networks margin. |