Hexicon Q4’24 preview: It’s all about divestments

Hexicon will publish its Q4 results on Wednesday, February 19, at 8:00 am CET. We expect the company’s revenue to continue to be modest, driven mainly by consulting fees. In the bigger picture, we believe that project divestments will be the main growth driver in the coming years. We therefore look forward to hearing more details on potential divestments, with a particular focus on the important MunmuBaram project.

Divestments remain to be the key to positive cash flow

We expect Hexicon’s revenue to be relatively flat year-on-year, amounting to 0.7 MSEK, primarily driven by consulting fees that Hexicon earns from its development projects. In a broader context, Hexicon's investment case and the path to cash flow neutrality largely depend on the successful development and divestment of its project portfolio. Therefore, we do not place too much emphasis on the quarterly revenue figures. Instead, we focus on the progress of the late-stage projects, particularly the significant MunmuBaram project.

In our view, the operational progress of the company’s project portfolio and the advancement of potential divestments have been mixed during Q4. On the negative side, the Swedish government has rejected the applications for two of Hexicon’s projects, Cirrus and Dyning. Together, these projects accounted for nearly 30% of Hexicon’s net portfolio. On the positive side, the company achieved a significant milestone with the approval of two out of three Electricity Business Licenses (EBLs) for the MunmuBaram project. This has allowed Hexicon to focus on establishing a long-term ownership structure for the next, more capital-intensive phase of the project. While the third EBL is still pending approval, we view this development positively as it moves the project closer to divestment.

Profitability is still in the red without divestments

We expect the company’s operating loss (EBIT) to increase to -37.1 MSEK (Q4’23: -32.4 MSEK). With a cash balance and available credit facilities totaling approximately 43 MSEK at the end of Q3’24, a quarterly burn rate of around 20 MSEK, and the need to repay a 75 MSEK credit facility by June 2025, it is clear that a financing solution will be required soon. We expect the company to divest a portion of its MunmuBaram project during the current quarter, which could secure short-term funding and reduce the financial exposure to the project. However, if the company does not manage to divest any of its projects, or does not obtain enough through its divestments, Hexicon is likely to seek other financing solutions. However, raising additional debt may not be feasible given the already high level of debt. On the other hand, an equity issue at the current valuation would be both expensive and dilutive to shareholders.

We expect substantial revenues in 2025, but uncertainty is high

Hexicon does not provide financial guidance. However, we estimate that revenue for 2025 will reach 268 MSEK, with positive bottom line results, primarily driven by a partial divestment of the MunmuBaram project. As such, our estimates are highly dependent on a successful divestment of the project. Furthermore, our forecast carries significant risks, as the revenue from the sale is contingent on several uncertain factors, including the size of the divestment (MW), the sale price, and the deal structure. In the upcoming Q4 report, we will closely monitor any developments regarding the long-term ownership structure of the project, as well as the company’s views on its financing needs.