Hexagon CMD: Well-positioned to grow organically by leveraging recent R&D investments
Hexagon organized a Capital Markets Day on Thursday. The financial targets were kept unchanged. The company slightly changed its division structure and will start to report all five divisions’ sales and EBIT separately in the future. The CMD demonstrated Hexagon’s strong technology portfolio well that is a good match with the prevailing market megatrends. The company has spent extensively on R&D in recent years and seeks those investments to bear fruit in the upcoming years.
Growth targets reaffirmed - no big deals in the current M&A pipeline
Hexagon reaffirmed its financial targets for 2026 at the CMD. The targeted sales growth from 2022 to 2026 is at 8-12% p.a., of which 5-7% organically. Regarding future acquisitions, the company said its current M&A pipeline consists of small and medium-sized companies but it will not rule out making larger transformative deals in the long-run. For the first 7 quarters of the target period (Q1 2022-Q3 2023) the company has enjoyed organic growth of 8% on average making it well positioned to fulfill the reaffirmed organic growth target even if a macroeconomic slowdown emerges during the target period. Our estimates assume organic growth to moderate at 5% on average in 2024-26.
Hexagon already has a majority of the global industry leaders as customers and it continues to grow inside this customer base by going further in the value chain of digital realities. It wants to increase the attach rate of software and hardware solutions to enable synergies between its different technologies. It is also adding another layer of sales people to facilitate cross-divisional sales given that there’s clear sales synergies to be achieved between, e.g., reality capture hardware in Geosystems and industrial asset management software in Asset Lifetime Intelligence.
Increasing gross margins and low fixed cost growth help reach >30% EBIT
The existing profitability target was also reaffirmed. Hexagon targets an adjusted EBIT margin of over 30% by 2026 (2022: 29.3%, our estimate for 2026: 30.0%). To reach its target, the company wants to continue to increase gross margin through improving sales mix and increased productivity. In addition, the current cost-efficiency program should curb the growth of fixed costs. In terms of R&D spending, Hexagon has been in an investment phase in the past two years and launched several new products. In the coming years, the company will focus on leveraging the recent innovation and reduce the proportional R&D spend of sales. The company said it has already reached annualized cost savings of 45 MEUR (run rate) of the targeted 160-170 MEUR in its rationalization program.
Improved transparency and a new reporting structure
In the past, Hexagon has reported its sales and profitability for two business areas, Geospational Enterprise Solutions and Industrial Enterprise Solutions. From 2024 onwards, it will report its sales and profitability figures for five divisions that are Geosystems, Autonomous Solutions, Safety Infrastructure & Geospatial (SI&G), Manufacturing Intelligence and Asset Lifetime Intelligence. It will also give more detailed information about the acquired companies regarding price, sales, profitability, and which division the acquired business belongs to. The company has also renewed the management compensation so that the performance pay will be linked to organic growth, adjusted EBIT margin and cash conversion instead of just absolute EBIT as it used to be in the past.
Hexagon
Hexagon is a global provider of technology solutions. The company specializes in the development of information technology that is further used in geospatial and industrial applications. The company's solutions mainly integrate sensors, software, industrial knowledge, and customers' workflows into information ecosystems. Customers are found on a global level in various industries. Hexagon was founded in 1975 and is headquartered in Stockholm, Sweden.
Read more on company pageKey Estimate Figures25.11.2023
2022 | 23e | 24e | |
---|---|---|---|
Omsætning | 5.160,5 | 5.450,6 | 5.721,7 |
vækst-% | 18,88 % | 5,62 % | 4,97 % |
EBIT (adj.) | 1.517,8 | 1.590,5 | 1.685,3 |
EBIT-% (adj.) | 29,41 % | 29,18 % | 29,45 % |
EPS (adj.) | 0,44 | 0,43 | 0,46 |
Udbytte | 0,12 | 0,12 | 0,13 |
Udbytte % | 1,22 % | 1,17 % | 1,26 % |
P/E (adj.) | 22,13 | 24,03 | 22,37 |
EV/EBITDA | 16,98 | 17,84 | 14,88 |