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Research

  • Buy by micke (22/11/2023)
    • 30.00 +67.01% on 09/02/2024

    Hexatronic (HTRO) is a leading fiber optics company. The sales and profits have increased organically and via acquisitions, the share price had a fantastic rise from ~14SEK December 2020 to ~160SEK December 2022, where after the share price has crashed down to ~17SEK (21 Nov 2023), after several disappointing figures during 2023, market overall reevaluating growth, and short sellers (Viceroy Research) describing Hexatronic as uninvestable. On 21 Nov HTRO announced lower expectations on short term ebita margin of 12-14%, the share price dropped 36% that day. The presented numbers are only a part of the problem, investors and analysts lost confidence in the company and it's ability to see the market trends and communicate. HTRO announced that they will lay off 160 FTE. For an opportunistic investor this seems like a good time to do a review of Hexatronic. My guess is EPS25=3SEK, PE25=6 on today's share price of 18 SEK. I think there is good upside potential but with high uncertainty.

  • Business (2)
    • Short seller (Viceroy) claim that the share price is now at expected levels, which probably means that they have covered their short positions. If other short sellers are doing the same this could drive the share price up.

      https://www.aktiespararna.se/nyheter/blankarprofilen-nu-ar-aktien-dar-vi-forvantade-oss

      24/11/2023 by MICKE
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    • The fiber market seems to be under margin pressure. HTRO believes that the market problem are short term and that there are good medium to long term prospects. If HTRO is right profits will rise and the share price as well, but probably not near the peek levels of 2022. But if HTRO is wrong, the debt will be a problem.

      22/11/2023 by MICKE
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  • People (1)
    • I interpret the market as; the management with CEO Henrik Larsson Lyon has gone from very respected in 2022 to almost not trust worthy in 2023. In my opinion the management seem ok, but the market communication during 2023 has not been good.

      22/11/2023 by MICKE
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  • Financial (4)
    • Debt is increasing


      The net debt is increasing primanily due to Financial net debt including lease liabilities of 3.1 BSEK, or 1.8 times EBITDA R12 proforma. Increase from last quarter primarily driven by the acquisition of Fibron and capacity investments. (From 2023Q3)


      image

      (Image from HTRO 2023Q3 report)

      23/11/2023 by MICKE
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    • My guess is that fiber is a reasonably good long term business, the company's previous and current target of 12% ebita margin seams reasonable. HTRO says 2023Q4 sales will come down, but expect 2024H2 to recover. I think it might take longer due to high interest rates that will postpone investments. I'll choose to assume 8bn in sales with 12% margin = 0.96bn SEK as a guess for 2025, which is 130M lower than 2022. My guess is EPS25=3SEK, PE25=6 on today's share price of 18 SEK.


      image

      (Image parts from HTRO 2023Q3 report)

      22/11/2023 by MICKE
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    • Sales and profit have be rising but in 2023Q3 we saw a decline in margin and EPS, maybe due to inflation and price pressure on a declining market.

      image

      (Image from HTRO 2023Q3 report)

      22/11/2023 by MICKE
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    • On 21 Nov 2023 Hexatronic announced that short term ebita-margin is expected to be in the range 12-14 percent, down from previous target 15-17 percent. The higher target of 15-17 percent was announced early 2023, previous it was 12%, which now seems like a very bad timing. Since they as late as the 2023Q3 presentation talked about decline but where clear that the 15-17% was firm, the share crashed down 36%.
      (On HTRO website 21 November) The EBITA margin (earnings before amortisation of intangible assets) should be 15-17 % over a business cycle. The EBITA margin on a rolling 12-month basis on June 30, 2023, was 17,7%.

      22/11/2023 by MICKE
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  • Risks (1)
    • There is a risk that markets can get saturated, i.e. Sweden have installed fiber to home for years and the pace is now much slower. HTRO are investing in other segments such as datacenters and harsh environments, maybe it is good but it comes with higher debt for the company.

      22/11/2023 by MICKE
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