Hexicon: A long-awaited divestment, but financing risks persist

We reiterate our Sell recommendation for Hexicon but increase our target price to SEK 0.20 per share (prev. SEK 0.14). While we view the recent divestment as positive, as it reduces the financing risk somewhat and indicates confidence in the company’s ability to divest early-stage projects successfully, we believe that the valuation has risen to high levels. Additionally, we anticipate the need for further financing in the coming months, leading us to perceive the risks as too great for the time being to rely on the potential.

Investment case dependent on successful development of the project portfolio

Hexicon has 9 projects under development, totaling approximately 8,700 gross MW, with an additional ~6,600 gross MW in the prospect pipeline. In our view, Hexicon’s investment case and path to cash flow neutrality depend on the successful development and divestment of its project portfolio. However, the main near-term risks are limited financing and highly negative cash flows, which could expose investors to an uncertain degree of dilution in future capital raises.

Recently, Hexicon signed a Sales and Purchase Agreement (SPA) with Ingka Investments and Oxan Energy to sell its 50% stake in two Italian floating offshore wind projects, Sicily South (1,150 MW) and Sardinia Northwest (1,300 MW). The transaction, expected to close in April, will reduce Hexicon’s development portfolio to seven projects totaling ~6,300 gross MW. The deal includes an upfront payment of 2.5 MEUR (~27 MSEK) and conditional milestone payments tied to Environmental Impact Assessment approval, offtake auction wins, and/or the Final Investment Decision. The total potential payment, including the upfront amount, could reach 20 MEUR (~216 MSEK).

We view this divestment as a positive step, reinforcing Hexicon’s investment case by demonstrating its ability to sell projects at a reasonable price despite challenging market conditions. While the company has not disclosed specific investment return figures, the sale before the first major cost-intensive phase, suggests the IRR should be relatively good. Despite this positive development, Hexicon’s key near-term risk (limited financing) remains. The company continues to generate negative cash flows and must repay a 75 MSEK credit facility by June 2025. Although the 27 MSEK upfront payment will help, it is insufficient, and additional funding will be needed soon. As a result, we still anticipate Hexicon will seek further capital, most likely through an equity issue, given its already high debt levels.

Increased estimates to reflect the latest divestment

Although our previous estimates assumed the Sicily South and Sardinia Northwest projects would be divested, we expected Hexicon to do so starting from 2027, with milestone payments until 2029. However, with an earlier-than-expected divestment, we have raised our revenue and earnings estimates for 2025 (including the upfront payment) and for 2026-2027 (milestone payments). While the maximum payment is ~216 MSEK, there is uncertainty about the project's progress to an offtake auction at the current MW, as seen with the MunmuBaram project. We have therefore assigned a 50-70% probability of success (POS) for both projects. The accelerated divestment negatively impacts our 2027-2029 estimates, but this is partly offset by raising the POS for early-stage projects to 25% (previously 20%), reflecting Hexicon’s improved track record in early-stage divestments.

Financing risks still weigh on the risk/reward ratio

Based on our SOTP valuation, we have estimated a value per share ranging from SEK 0.10-0.40 (prev. 0.07 to 0.37) per share, with the lower end of the range represented by a negative scenario and the upper end by a more positive scenario. This range has been slightly raised due to higher estimates. 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.