Hexicon Q2’24 earnings preview: Project divestments continue to be in focus

Hexicon will publish its Q2 report on Wednesday at 8:00 am CEST. We expect the company’s revenue to continue to be modest, driven mainly by consulting fees. However, we expect operating loss to decrease due to improved cost control. More broadly, we believe that project divestments will be the main growth drivers in the coming years. We therefore look forward to hearing more details on potential divestments, with a particular focus on the important MunmuBaram project.

Modest revenue but project divestments are key

We forecast Hexicon’s Q2 revenue to decrease by 25% year-on-year to 1.9 MSEK. In absolute terms, however, the decline is relatively modest. In a broader context, Hexicon's investment case and the path to cash flow neutrality largely depend on the successful development and divestment of its project portfolio. Therefore, we do not place too much emphasis on the quarterly revenue numbers. Instead, we focus on the progress of the late-stage projects, particularly the MunmuBaram project. We expect the company to divest a portion of this project in Q3, which could secure short-term funding and reduce the financial exposure to the project.

Improved cost control but profitability remains negative

We expect the company’s operating loss to decrease to -33.1 MSEK (Q2’23: -75.9 MSEK), largely because expenses related to the MunmuBaram project were not capitalized in the comparison period. Additionally, the pace of development in the project has slowed due to the upcoming structural change in ownership, leading to lower operational costs. The company’s cash position at the end of Q1’24 was 152 MSEK. However, given the still high cash burn rate and the need to repay the 75 MSEK credit facility by the end of 2024, we believe that the company will need additional capital this year. While we expect some of this capital to come from the sale of parts of the MunmuBaram project, we cannot rule out the possibility that the company will also seek alternative financing options beyond divestments.

Divestments crucial in the near term

Hexicon has indicated that it is seeking a new partner for the MunmuBaram project and intends to divest portions of it to support cash flow and reduce financial exposure to the project. Consequently, we are looking for any comments on the long-term ownership structure of the project and the company’s outlook on its financing needs.