Hexagon will publish its Q4 financial report on Thursday, February 1. We expect sales growth to slow somewhat and relative profitability to remain flat year-on-year, partly weighed down by negative FX effects. Forward-looking comments on the growth outlook could drive the share price, even though the company does not typically provide any numerical group-level guidance.

We estimate growth to slow down after a strong period

We estimate Hexagon’s revenue to grow by 3.5% in Q4 to 1,451 MEUR, consisting of 6% organic growth, -4% currency impact and 1% structural growth. Looking at the two business areas, we expect Geospational Enterprise Solutions (GES) to grow 4% organically and Industrial Enterprise Solutions (IES) to grow 7% organically. Hexagon still has solid organic growth prospects driven by product innovation in several divisions, good momentum in autonomous solutions (Autonomy and Positioning) and fast-growing SaaS businesses (Asset Lifetime Intelligence). However, we expect the cyclical component to slow growth somewhat due to weaker demand in the construction and mining sectors (affecting Geosystems). Also, the global manufacturing activity has softened slightly in H2’2023 (S&P Global Manufacturing PMI ~49), which could impact growth in Manufacturing Intelligence. Autonomy and Positioning, a relatively small segment, saw exceptionally strong growth in Q2-Q3’2023 driven by a few large orders, which we believe is unlikely to be repeated in Q4.

Organic sales growth

Source: Hexagon and Inderes estimates

Negative FX effects to offset positive profitability development

Our estimate for Hexagon’s Q4 adjusted EBIT is 432 MEUR (Q4’22: 418 MEUR) with adjusted EBIT margin at 29.8% (flat y/y). We estimate that currency fluctuations could have a negative impact on adjusted EBIT of around 26 MEUR year-on-year. We estimate a slight decline in gross margin to 66.0% (Q4’22: 66.2%), offset by a similar improvement in OPEX. The main positive drivers for profitability are 1) improving sales mix through growth in higher value-added products and 2) the cost-efficiency program launched in mid-2023. The company said at its CMD (Dec’23) that it has already achieved annualized cost savings of 45 MEUR (run rate) out of the targeted 160-170 MEUR in its rationalization program. Our earnings estimates are broadly in line with the analyst consensus compiled by Hexagon.

Forward-looking comments may impact to near-term growth estimates

Hexagon has not provided numerical guidance for the group in recent years, and we do not believe that 2024 will be an exception. However, the company does comment on orders and market activity at the divisional level. In particular, commentary on growth prospects in the cyclical Geosystems and Manufacturing Intelligence divisions could provide material information to investors that could shape near-term estimates and affect the share price.