Hexicon Q4'24: Delays in divestments extend funding uncertainty

Hexicon’s Q4 report contained no major surprises. In the context of a challenging operating environment, the company continues to experience long divestment processes and negotiations. As a result, we expect the establishment of a long-term ownership structure for the MunmuBaram project, which could provide near-term financing and improve cash flow for project development, to be delayed until around summer 2025. In our view, the company needs additional capital in the coming months, forcing Hexicon to explore other financing options on uncertain terms. Against this backdrop, we believe the near-term risk/reward is unfavorable. Therefore, we reiterate our Sell recommendation and keep our target price of SEK 0.14 per share unchanged.

Low revenues but cost development going in the right direction

Hexicon’s Q4 revenue increased to 4.7 MSEK, above our estimate of 0.7 MSEK. However, in absolute terms, the increase was relatively modest. While the company demonstrated better cost control than expected, the lack of divestments and, therefore, a low revenue base kept Q4 EBIT negative at -11.9 MSEK. At the end of 2024, Hexicon’s cash position stood at 23 MSEK, with all available loan facilities fully drawn. Given the high cash burn and the need to repay the 75 MSEK credit facility by June 2025, additional capital will be required soon. While we expect divestments to be part of the financial solution, the likely delay of the MunmuBaram project means they may not be sufficient. As a result, we anticipate the company will seek additional funding through either an equity issue or increased debt. In our view, raising capital through additional debt may not be viable given the already high level of debt. On the other hand, an equity issue at the current valuation would be both expensive and dilutive for shareholders. In our view, the optimal solution, if feasible, would be a directed issue to a strategic partner who could facilitate Hexicon’s project development and business expansion.

We made only minor estimate changes for the coming years

In Hexicon’s Q4 report, the company stated that a new ownership structure for the MunmuBaram project is unlikely to be established in the near future due to the current political landscape and the upcoming re-election. In light of this, we revised our previous estimate that the project would be partially divested by Q1’25 to Q2/Q3'25. However, it's important to note that despite this delay, we expect the company to defer rather than lose revenue, pushing it into future quarters. As a result, our full-year revenue estimates for 2025–26 remain largely unchanged, with only a slight positive adjustment due to higher consulting fee revenues. Furthermore, due to Hexicon's refined focus on prioritizing projects that can be divested in the short term, the company has shown better cost control than we initially expected. As a result, we lowered our cost estimates, primarily for the current year. While this positively impacts the operating result, the overall effect remains relatively small in absolute terms.

Financing risks weigh on the risk/reward ratio

Based on our SOTP valuation, we have estimated a value per share ranging from SEK 0.07 to 0.37 per share, with the lower end of the range represented by a negative scenario and the upper end by a more positive scenario (more details about the different scenarios in the valuation section). Given the weak operating environment, the uncertainty around the timing of a possible divestment, and the need for short-term financing, we believe that the drivers currently justify a valuation towards the lower end of the range. Although there are promising growth prospects and value creation opportunities in the longer term, we believe that the current valuation does not offer enough upside potential to justify the associated risks and uncertainties.