The fading ESG overhang

Swedish telco equipment maker Ericsson announced yesterday a provision of SEK 2.3bn in Q4 in relation to a potential resolution with the US Department of Justice of a breach situation in a case of payments to the Islamic State in Iraq. Stock price was up 6% as the provisions indicates a deal is close and the amounts are much less than feared. With this ESG overhang slowly fading away, we believe investors can rightly focus again on the attractive valuation and solid fundamentals of the company. In our proprietary quality-value framework for example, Ericsson looks cheap compared to the underlying quality of the business. According to SEB, it trades at 10.5 times 2022e earnings with a dividend yield of 4.2% and a ROCE of 15.7%. We remain invested.