Hexicon: We are discontinuing coverage

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.

Investment story relies on successful development of the project portfolio

Hexicon’s business model is divided into two business areas: project development and technology. The technology division is focused on developing TwinWind, a floating wind turbine foundation that the company intends to commercialize and license for future floating wind projects. Given the early stage of this technology, we believe Hexicon's path to cash flow neutrality hinges largely on the successful development and divestment of its project portfolio. Hexicon concentrates on the early-stage development of floating offshore wind projects, with the objective of divesting them before the construction phase. Although Hexicon has successfully developed and divested some projects in recent years, progress has been slow, resulting in limited revenues and negative cash flows. We believe that Hexicon possesses the scalability to achieve good profitability and positive cash flows once it divests more projects, leading to more frequent milestone payments and, consequently, higher revenue levels.

Revenue growth is the key value driver but the uncertainty remains high

Hexicon is currently in an investment phase with negative cash flow. In our view, the key factors for reducing investment risk include securing sufficient capital and enhancing growth. On the capital side, Hexicon’s recent divestments of two Italian projects are expected to add 27 MSEK to its strained cash position (5.3 MSEK at the end of Q1). However, with a high cash burn rate and a 75 MSEK credit facility due by June 2025, additional capital is needed very soon. While we expect further divestments to be part of the financial solution, the likely structure of smaller upfront payments with larger milestone payments means that divestments will probably not be the only solution. As a result, we anticipate that Hexicon will seek funding through an equity issue, as high debt levels (net debt Q1’25: ~755 MSEK) make further debt financing unviable. On the growth side, we see revenue growth from project divestments as the main driver for reaching the necessary scale for positive cash flows. This includes, in particular, the large-scale MunmuBaram project, as well as other projects that are closest to FID, such as Mareld. However, given the uncertainties surrounding the size, pricing, and structure of future divestments, the risks remain high.

We are discontinuing coverage of the stock

Our research coverage of Hexicon has been based on an equity research service agreement between Inderes and Hexicon. We will discontinue our coverage for the investor community and Hexicon’s owners as the company has terminated the agreement. We recommend that investors follow Hexicon’s reporting and news feed. All of our previously published research on the company continues to be available in our service here.