Hexicon Q1'25: Financing risks weigh on the risk/reward ratio

Recent developments in Hexicon’s project portfolio have been mixed, in our view. While we view the recent divestment as positive, as they reduce the financing risk somewhat and indicate confidence in the company’s ability to divest early-stage projects successfully, the progress of the divestment of the important MunmuBaram project seems to be slower than earlier anticipated. In our view, the company needs additional capital in the coming month, forcing Hexicon to explore other financing options on uncertain terms. Against this backdrop, we believe the near-term risk/reward is unfavorable. Therefore, we reiterate our Sell recommendation and keep our target price of SEK 0.20 per share unchanged.

Uncertainty around the financing situation persists

Hexicon’s Q1 revenue increased to 5.6 MSEK, above our estimate of 1.2 MSEK, mainly driven by consulting fees earned from development projects. While the company demonstrated better operational cost control than expected, the lack of divestments and, therefore, a low revenue base kept Q1 EBIT negative at -19.7 MSEK. At the end of Q1’25, the company’s cash position amounted to 5.3 MSEK, with all available loan facilities fully drawn. However, after the quarter ended, we expect the company has received an upfront payment of around 27 MSEK related to the divestments in Italy. Nevertheless, given the still high cash burn and the need to repay the 75 MSEK credit facility by June 2025, it is evident that Hexicon’s short-term financing is stressed and that additional capital will be required 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 the company will seek additional funding through either an equity issue or increased debt. Given the very high debt levels (net debt Q1’25: ~755 MSEK), we believe further debt financing is not a viable option. On the other hand, an equity issue at the current valuation would be both expensive and dilutive for shareholders.

More significant cash flows from divestments will likely take time

In connection with its Q1 report, Hexicon provided updates on the MunmuBaram project, the most valuable project in its development portfolio. To our understanding, a partial divestment is still possible in 2025, though probably not under the originally planned structure of bringing in an industrial majority owner. Delays in securing the Electricity Business Licenses and recent political instability in South Korea make the timeline challenging. We now believe Hexicon is more likely to divest a smaller stake to a minority partner in 2025 to help advance the project through an auction (a key value-enhancing milestone), which would enable a larger transaction in 2026. Given this, we have lowered our current-year revenue forecast but estimate 2025 revenue at 193 MSEK, mainly driven by the partial MunmuBaram divestment and the upfront payment from the Italian projects sold in Q1. For 2026–2027, we expect major growth from a larger divestment of the MunmuBaram project, a partial sale of the Swedish Mareld project, and milestone payments from the Italian projects. However, we highlight that the forecasts carry significant risk, given uncertainties around the size, pricing, and structure of future divestments.

We believe that the risk/reward is still weak

Based on our SOTP valuation, we have estimated a value per share ranging from SEK 0.10 to 0.40, with the lower end of the range represented by a negative scenario and the upper end by a more positive scenario (more details about the different scenarios in the valuation section). Given the weak operating environment and the need for short-term financing, we believe that the drivers currently justify a valuation towards the lower end of the range. In our view, without clear positive short-term drivers, the risk of significant dilution calls for caution.