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Danske Bank Rec: Buy Tele2 29s Outright Or Switch From Tele2 31s

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  • The Tele2 EUR bond curve shows a significant 'hump', making the 3.75% 29's attractive compared to the 0.75% 31's given the wider spread despite the 31s having benchmark status.
  • The 31's trade below par, offering potential upside in a par redemption event, though Danske see the likelihood as low, making the current price difference unjustified in the ST.
  • Q423 results indicate a stable outlook with guidance for low single-digit 2024 growth in Rev and EBITDA, which could correct the 'hump' and offer relative outperformance.
  • Tele2 has kept leverage at the lower end of its 2.5-3x target range, with only a slight increase in proposed dividend for 2024, suggesting leverage will remain near the target's lower end.
  • Risks include Tele2's shareholder-friendly financial policy potentially pushing leverage to the upper end of the target range which would imply an S&P-adjusted leverage above the 3.2x cap for a BBB rating.
  • Danske also note speculation around Kinnevik's ownership possibly rekindling M&A talks, though any event is deemed unlikely over the ST due to tight financial conditions.

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