Hexicon Q3’24 preview: Divestments and financing in focus

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.

Divestments are key to cash flow neutrality

We expect Hexicon’s revenue to be relatively flat year-on-year, amounting to 0.8 MSEK, primarily driven by consulting fees that Hexicon earns from its development projects. In the bigger picture, however, Hexicon’s investment case and growth to cash flow neutrality hinges on successful development and divestments of the project portfolio. Therefore, we believe it is important to closely monitor the progress of late-stage projects in the near term, particularly the MunmuBaram project. We expect the company to divest a portion of this project in Q1’25, which could provide short-term funding and reduce the financial exposure to the project. Additionally, we will follow the development of early-stage projects that we expect will play a significant role in the company’s long-term growth prospects.

Profitability and cash flow remains negative without divestments

We expect the company’s operating loss (EBIT) to increase to -31.4 MSEK (Q3’23: -27.6 MSEK). With a cash balance and available credit facilities totaling approximately 80 MSEK at the end of Q2’24, a quarterly burn rate of around 20 MSEK, and the need to repay a 75 MSEK credit facility by December 2024, it is clear that a financing solution will be required very soon. Given the high debt levels (net debt Q2’24: ~530 MSEK), we believe further debt financing is not a viable option. However, raising capital through an equity issue will be expensive and dilutive to the shareholders at the current low valuation.

We seek comments on Hexicon’s projects in Sweden

Earlier this month, Hexicon announced that the Swedish government had rejected the applications for two of its projects, Cirrus and Dyning, which we commented on here. Together, these projects represent approximately 29% of Hexicon's net portfolio. In addition to Cirrus and Dyning, Hexicon has another major project in the Swedish market, Mareld, located off the west coast of Sweden. Our initial assessment is that the decision should not affect the Mareld project as it is located outside the sensitive areas identified by the Ministry of Defense. However, in the upcoming Q3 report we seek comments on how this decision will affect the value of the project portfolio and the Mareld project in Sweden.