S&P upgrades Sweden's Ericsson to 'BBB-' with stable outlook

FILE PHOTO: Ericsson logo is seen at its headquarters in Stockholm, Sweden June 14, 2018. REUTERS/Olof Swahnberg/File Photo

STOCKHOLM (Reuters) - S&P said on Wednesday it has upgraded its credit rating on telecom gear maker Ericsson to ‘BBB-’ with a stable outlook following a solid improvement of free cash flow.

S&P, whose previous rating on the Swedish firm was BB+, said the stable outlook reflected expectations that Ericsson would post low-single-digit revenue growth, and maintain its adjusted EBITDA margin at 12% to 14%.

“We expect Ericsson’s annual reported free operating cash flow after lease payments will increase to about 10 billion Swedish crowns in 2020, compared with about 4 billion annually from 2016-2018,” S&P said in a statement.

The credit rating agency said it could raise the rating again if Ericsson’s revenue prospects improved, “likely from a continued improved market position in the mobile RAN market or new revenue streams from the Internet of Things (IOT) applications”.

It added that the rating might be cut if Ericsson’s recovery would unexpectedly stall, due to materially worsening competitive conditions or higher-than-expected nonrecurring costs.

S&P affirmed its ‘A-3’ short-term rating on Ericsson.

Reporting by Helena Soderpalm and Mathieu Rosemain; Editing by Sandra Maler and Paul Simao