Hexicon is a project developer in floating wind that opens up new markets in countries with deep water. The company is also a technology supplier with TwinWind, a patented floating wind design. The technology enables increased use of global wind power and can thus contribute to increased access to renewable energy. Hexicon operates in several markets in Europe, Africa, Asia and North America.
Recent developments in Hexicon’s project portfolio have been mixed, in our view. While the MunmuBaram project finally received regulatory approval, the Swedish Government rejected two key projects, affecting the valuation negatively. Furthermore, Hexicon is still in need of immediate cash infusion, and we believe it will be difficult for the company to overcome the downward pressure from the expected equity issue, the high cash burn, and the remaining question marks concerning the structure of the MunmuBaram divestment. Against this backdrop, we believe that the near-term risk/reward profile is unfavorable. Consequently, we revise our recommendation to Sell (was Reduce) and lower our target price to SEK 0.14 (was 0.23), reflecting the negative impact of the reduced net capacity in the project portfolio and aligning with our SOTP valuation.
Hexicon has announced that the South Korean Electricity Regulatory Commission (KOREC) has approved the transfer of two out of three Electricity Business Licenses (EBLs) for the MunmuBaram project. This approval allows Hexicon to establish a long-term ownership structure for the project and move it forward towards auction. While we view this development as very positive, it is in line with our expectations, and we therefore maintain our current estimates and valuation.
Hexicon will publish its Q3 results on Friday at 8:00 am CET. We are interested in any updates on potential divestments, with a particular focus on the important MunmuBaram project. In addition, we are looking for the company's comments on how the recent news that the Swedish government has rejected applications for two of Hexicon's projects affects the value of the project portfolio and the company's other project in Sweden.
Hexicon has announced that the Swedish government has rejected the applications for two of its projects, Cirrus and Dyning, which together represent approximately 29% of its net portfolio. Given the significant size of these projects and the fact that our estimates include the assumption that the projects will be approved and progress positively towards Final Investment Decision (FID), we will revise our estimates, valuation and recommendation no later than in connection with the upcoming Q3'24 report on November 29.
Hexicon has announced that its South Korean project, MunmuBaram, has entered into a Transmission Service Agreement (TSA) that will facilitate the supply of electricity to the South Korean grid once the project is ready for commissioning. In our view, this marks another important milestone for the project and supports our estimates that development will continue to progress in the right direction, with a gradual divestment anticipated before reaching the Final Investment Decision (FID). However, as this news aligns with our expectations, we are not making any changes to our estimates or valuation at this time.
Given the ongoing weak market conditions, which have slowed the pace of divestment processes, and the continued lack of news regarding regulatory approval for the change of control of the key MunmuBaram project, we believe that operational risks have increased. In addition, the falling share price has increased financing risks (equity issue 1-2x current market cap expected in the next ~3-6 months) and is starting to cause uncomfortably high volatility in expected returns and dilution, and we wait for these risks to subside.
Hexicon has announced that one of its key projects, MunmuBaram, has received approval of its Environmental Impact Assessment (EIA) from the South Korean authorities. We believe this news marks an important milestone for the MunmuBaram project, as approval is required to participate in South Korea's new wind power auction system. While we view the news positively as it supports our view that the project will continue to make positive progress towards FID, we are not making any changes to our estimates or valuation at this time.
Hexicon's Q2 report contained no major surprises. The company is still awaiting regulatory approvals for the transfer of ownership of the key MunmuBaram project. As a result, we expect the establishment of a long-term ownership structure for the project, which could provide near-term financing and improve cash flow for project development, to be delayed until 2025. In addition, the immediate need for a cash infusion is forcing Hexicon to explore other financing options on uncertain terms. Against this backdrop, we believe that the near-term risk/reward profile is not favorable.
Hexicon will publish its Q2 report on Wednesday at 8:00 am CEST. We expect the company’s revenue to continue to be modest, driven mainly by consulting fees. However, we expect operating loss to decrease due to improved cost control. More broadly, we believe that project divestments will be the main growth drivers in the coming years. We therefore look forward to hearing more details on potential divestments, with a particular focus on the important MunmuBaram project.
Hexicon has announced that the County Administrative Board in Västra Götaland has recommended, with certain modifications, that the Swedish Government approve Freja Offshore’s application to construct its offshore wind park, Mareld. This news marks a significant milestone for Hexicon’s Swedish project portfolio and supports our estimates that these early-stage projects will continue progressing positively and be gradually divested before reaching Final Investment Decision (FID). However, we do not make any changes to our estimates or valuation at this time.
Today, Hexicon announced an extension of the repayment and accrued interest on its current 75 MSEK credit facility until the end of 2024. While we view the news as positive, providing the company with greater flexibility regarding the timing of the important MunmuBaram divestment, we are not making any changes to our estimates or recommendation.
