Hexatronic Group AB - Cables for the world

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Swedish Hexatronic once again released an interim report that slightly exceeded Red Eye’s forecasts, so I decided to create my first thread as the company does not yet have its own thread.

The company operates quite globally, with most of its business currently in the Europe/North America region, but they just made acquisitions in Australia, among other places.
In terms of valuation, it’s not particularly cheap (as no good growth company is at the moment), but it’s not priced like QT either, and the growth figures are convincing.
Q3 growth of 69% and growth has been accelerating. Profitability (EBIT%) is slightly over 10%, and profitability has suffered somewhat temporarily due to rising material and freight prices, but not dramatically (unless compared to the Q2 result, which was exceptionally strong).

The company manufactures various cables and conductors.
Products | Hexatronic

Interim reports, including Q3:
Financial (hexatronic.com)

Q3 results

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Red Eye’s initial comment:
Hexatronic Q3’21: Sales and Adj. EBITA Beating Our Forecasts (redeye.se)

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Inderesin kahvihuone (Osa 7)
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“The company manufactures various cables and conductors.” → The company manufactures high-quality optical data cables for data transfer to the largest telecommunication companies, but also for demanding conditions such as the defense forces of various countries, space technology, and oil and gas companies, data centers, and the needs of the mining industry. A slightly more extensive explanation can be found on the company’s website. The company is listed on Nasdaq Stockholm Mid Cap.

Hexatronic Group consists of +20 companies with a total of +900 employees. The Group’s headquarters are in Gothenburg, Sweden.

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Good opening!

This has risen 588% in a year, it’s been a strong run.

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Analysis of Hexatronic - buy, sell or hold? 10.11.2021

In today’s case study with Dagens Trading, we go through Hexatronic. Is the stock still worth buying despite the recent bull run? What do they actually do? Which markets are they on and how much more can the stock go up? In this case study, we try to give you all the information you need.

The best analysis I have found on the company so far. A 38-minute video in Swedish. You’re welcome!

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https://www.globenewswire.com/NewsRoom/ReleaseNg/401206073

Preliminary net sales for the quarter amounted to approximately 1,388 MSEK (635), which corresponds to 119 percent growth compared to the same period last year, of which about 70 percent is organic. EBITA for the first quarter is expected to amount to 184 MSEK (64), which corresponds to 189 percent growth compared to the same period last year and an EBITA margin of 13.3 percent (10.1).

“During the quarter, we have continued to see very strong demand in basically all our markets. In 2021, extensive investments were made in capacity, broadened offering, acquisitions and strengthened organization, which has been a strong contributor to the result above our expectations in the first quarter of 2022 ” , says Henrik Larsson Lyon, CEO of Hexatronic Group.

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" Preliminary figures for the second quarter show an increased EBITA of 173 percent compared to the same period last year

Hexatronic’s sales and earnings during the second quarter of 2022 are expected to increase sharply due to strong growth, primarily in the US, the UK and Germany"

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No surprises here compared to the preliminary results. A few highlights from the CEO’s words:

“The uncertainty regarding the development of raw material prices remains. After the end of the second quarter, further substantial price increases within certain product categories were announced. Efforts to pass on these price increases to customers are a high priority, but we estimate that the gross margin will continue to be negatively affected during the coming quarter.”

“We expect our new duct factory in Clinton, South Carolina, to begin production during the fourth quarter of this year. The factory will be a major contribution to continued organic sales growth.”

“We ended the quarter with an order book that was 154 percent higher organically than at the same point in the previous year. The strong order book is well distributed across most of our companies, with those in the USA accounting for the largest increase.”

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Hexatronic out shopping.

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Next purchase

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Lisää ostoksia.

In the broken fiscal year, October 2021 to September 2022, Rochester Cable is expected to generate a proforma stand-alone EBITDA of approximately USD 8 million, representing a proforma transaction multiple of approximately 7x EBITDA. The acquisition is immediately accretive to earnings, adding an estimated 0.18 SEK per Hexatronic share in the first full year after close.

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Good work!

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In short: Strong growth, especially in North America (159% growth). Raw material costs stabilizing, but visibility on these is uncertain. Full production for the new factory in Q2 2023. Order book 168% higher organically compared to a year ago. Not many weaknesses are visible here despite the macro situation, and the stock is reaching new highs. It’s easy to stay on board!

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E: Despite its strong performance, Hexatronic, in my opinion, generates far too little discussion :slightly_smiling_face:

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The second national language might not come that easily to me in this format, but I’ll share this here anyway.

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Press Release on a New Acquisition

Too much spam, so I have to edit it directly here.

"https://ml-eu.globenewswire.com/Resource/Download/61d01168-f5bd-47c5-ae60-35b13fd379fb

“The sales are made, among other things, to cover tax obligations from the just-ended long-term
incentive plan (LTIP 2019).
Henrik Larsson Lyon, Håkan Bäckström, and Magnus Angermund have no plans to sell additional
shares and intend to remain as long-term owners of Hexatronic. Martin Åberg may sell up to 60,000
additional shares, after which there are no plans to sell more.”

The share price dropped by approximately -10% due to this.

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Above is some background for today’s press release:
https://ml-eu.globenewswire.com/Resource/Download/bca74c35-0346-47b8-bf5e-fbceb953149f

“Hexatronic signs agreement with Eltel in Finland to a value of 20 MEUR
Hexatronic Cables & Interconnect Systems AB, a wholly owned subsidiary of Hexatronic Group AB
(publ.) has today signed a 3-year strategic supply agreement with Eltel for the Finnish market, to a
value of approximately 20 MEUR. The agreement covers the supply of Hexatronic’s air-blown fiberto-the-home (FTTH) solutions and field support services. Eltel will design and build FTTH networks
for one of the leading operators in Finland.”

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Another new deal for the US!

“Hexatronic US Inc, a wholly owned subsidiary of Hexatronic Group AB (publ), has signed a 4-year Strategic Partner agreement with Grizzly Broadband in Montana, USA, to a value of over 15 MUSD. The agreement covers the full Hexatronic fiber to the home (FTTH) system solution, site support and training. Grizzly Broadband will design, build and operate fiber-to-the-end user services throughout the state of Montana.”

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I’ve been listening to these myself, they’re quite interesting!

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"The board has reviewed Hexatronic Group AB (publ) financial targets in connection with the year-end 2022 financial statements.

Given Hexatronic’s strong development, market position and future opportunities, the Board of Directors has decided to adjust Hexatronic’s profitability target to 15-17 percent EBITA-margin (earnings before amortisation of intangible assets) over a business cycle. The previously set profitability target was at least 12 percent EBITA-margin over a business cycle.

Hexatronic’s growth target of at least 20% over a business cycle remains the same."

The timing of this announcement was a bit surprising, as it was released today after the market close, even though the full-year results are coming out tomorrow morning anyway.

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A few highlights from the report. I still haven’t listened to the earnings call, but I’m sure I’ll have time for it at some point over the weekend at the latest!

Growth in North America continues to be strong.

“Sales in our largest market, North America, continued to develop very strongly in the fourth quarter, with a growth of 100% compared to the same quarter last year”

Hopefully this stays on schedule.

" We expect full-scale production to be achieved by the end of the second quarter of 2023."

Europe, excluding Sweden, is also growing very nicely, thanks to the UK and Germany.

" Sales in the region increased by 56% compared to the corresponding quarter last year. "

I’m looking forward to seeing what KNET brings, especially regarding Asia.

“With the acquisition of the micro duct manufacturer KNET in South Korea, we enhance our position in our strategic growth markets in the US and Europe, as well as opening up new selected markets in Asia.”

The momentum doesn’t seem to be slowing down

“Order intake has continued to develop strongly. At the end of the year, we have an order book that is organically 67 percent higher than the corresponding time last year”

If we enter a recession, it’s good to keep the risks in mind.

“We assess that it will not negatively affect the rollout pace on the market as the limited factor is still expected to be trained installers. In the event of a potential recession, we expect to see some negative impact.”

Graphs are always nice, so let’s put this at the end!

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Inderesin kahvihuone (Osa 6)
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Handelsbanken flags in Hexatronic.

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