Hexicon

We are discontinuing our coverage of Hexicon as the company has terminated the research service agreement. Consequently, we will no longer be giving a target price (prev. 0.20) or recommendation (prev. Sell) for the stock. Hexicon possesses a large and diversified project portfolio with clear opportunities to create value at a relatively low cost, as projects are intended to be divested before the capital-intensive construction phase. However, scaling up growth has been slow, though successful divestments of larger projects have the potential to change this in the coming years. In our view, Hexicon’s shareholders should pay particular attention to the company’s ability to develop and divest its project portfolio, as this has a clear impact on how quickly the company can reach positive cash flow. Furthermore, debt levels are very high, and the company requires immediate liquidity solutions. As a result, we believe that shareholders should closely follow the company’s plans to resolve its financial position going forward.

Recent developments in Hexicon’s project portfolio have been mixed, in our view. While we view the recent divestment as positive, as they reduce the financing risk somewhat and indicate confidence in the company’s ability to divest early-stage projects successfully, the progress of the divestment of the important MunmuBaram project seems to be slower than earlier anticipated. In our view, the company needs additional capital in the coming month, 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 0.20 per share unchanged.

Hexicon will publish its Q1 results on Wednesday, May 28, at 8:00 am CEST. We expect Hexicon’s revenue to remain modest in Q1, primarily driven by consulting fees. Looking at the bigger picture, we believe project divestments will be the company’s main growth driver in the coming years. Accordingly, we look forward to further updates on potential divestments, particularly the strategically important MunmuBaram project. We will also pay close attention to the company’s comments regarding its financing needs.

We reiterate our Sell recommendation for Hexicon but increase our target price to SEK 0.20 per share (prev. SEK 0.14). While we view the recent divestment as positive, as it reduces the financing risk somewhat and indicates confidence in the company’s ability to divest early-stage projects successfully, we believe that the valuation has risen to high levels. Additionally, we anticipate the need for further financing in the coming months, leading us to perceive the risks as too great for the time being to rely on the potential.