Redeye retains its optimistic view on Hexatronic despite slightly lowering its Base Case and short-term forecasts. Regardless of the slight softening of the outlook within Fiber Solutions, we stick to our assumption of a market bottom in H1 2024, expecting positive organic growth and margin expansion in 2025.

Lagercrantz Group

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PowerCell Sweden

Invisio

Enea

Hexatronic Group

* Low share of recurring revenue and capital-intensive nature of manufacturing business, requiring significant reinvestment for growth.
* Relatively fragmented market with commodity-like products, limiting sustainable competitive advantages and long-term pricing power.
* Cyclical dependency on FTTH investments, which can lead to volatility in demand and financial performance.
* Inconsistent historical returns on invested capital compared to cost of capital, suggesting potential challenges in maintaining long-term profitability.
* Limited ability to increase prices above inflation without customer churn, indicating potential vulnerability to market pressures and competition.

* Strong growth potential in strategic markets (US, UK, Germany) and new areas like Harsh environment and Data centre, with successful geographic expansion.
* Benefits from secular tailwinds including increased demand for high-speed internet, AI, and focus on defence and security.
* Diversified revenue base across geographies, customers, and products, reducing risk and enhancing stability.
* Proactively promoting environmental sustainability through product innovation and working closely with customers to innovate and provide value.
* High employee satisfaction and positive relationships with customers and suppliers, indicating strong operational stability and stakeholder management.

* Operating margin (EBIT) below 20% and not consistently increasing, potentially indicating cost control issues or competitive pressures.
* Return on Equity (ROE) below 20% for the last five years, suggesting less efficient use of shareholder capital.
* Lack of stable earnings growth over the last 10 years, indicating potential volatility in the business model.
* Debt to Equity ratio above 40%, signaling higher financial leverage and potential risk during economic downturns.
* Operating Cash Flow conversion below 80% over the past five years, potentially indicating discrepancies between reported earnings and actual cash generation.

* Strong gross profit margin exceeding 40%, indicating pricing power and potential for accelerated profits with sales growth.
* Return on Assets outperforming industry average over the past five years, suggesting superior asset utilization and profit generation.
* Consistent above-average revenue growth over the last five years, signaling market share gains and competitive strength.
* Robust short-term liquidity with current assets 1.5 times greater than current liabilities, demonstrating strong financial health.
* Efficient inventory and accounts receivable management, with both ratios below 20% and their respective 5-year averages.

* Uncertainty surrounding the incoming CEO's capabilities and background, as the company transitions from the successful tenure of the outgoing CEO.
* Less than 50% of board members have substantial holdings, potentially reducing their alignment with shareholder interests.
* Absence of a controlling owner with a long-term commitment (no group holding more than 20% of votes), which can sometimes lead to less stable long-term strategic direction.

* Strong leadership with a clear long-term vision and commitment to innovation, demonstrated by the outgoing CEO's success in challenging conventional practices and creating value.
* Lean, decentralized organization promoting accountability and self-direction, with consistent delivery on promises and well-defined strategic plans focused on growth markets.
* Effective capital allocation, including opportunistic stock actions and investments generating attractive returns, particularly in geographical expansion and acquisitions.
* Transparent and timely investor communication, focusing on long-term business value and consistently presenting the same story and key metrics over time.
* Significant insider ownership (about 13%) and management stake (about 6%), indicating strong alignment with shareholder interests.

SEKm	2023	2024e	2025e	2026e	2027e
Total Revenue	8,241.0	7,633.7	8,532.8	9,563.2	10,416.1
Revenue Growth	24.3%	-7.4%	11.8%	12.1%	8.9%
EBITDA	1,463.0	1,067.6	1,349.1	1,597.3	1,795.8
EBIT	1,121.0	654.1	942.4	1,189.5	1,382.3
EBIT Margin	13.8%	8.7%	11.1%	12.5%	13.4%
Net Income	846.0	382.2	626.5	819.3	969.7
EV/Revenue	0.9	1.1	0.9	0.8	0.6
EV/EBIT	6.8	12.4	8.2	6.1	4.8

Softer Sales and Margins than Expected

Somewhat Softened Outlook

New Base Case SEK40 (43)

Key financials

Review of Q1 2024