As Hexatronic released their year-end report on Friday the announced a huge agreement in UK worth around 500 MSEK. Compared to 2018, this agreement equals around 30% of the total revenues. The sheer size of the order will make its imprint on the reports the coming years. During 2018, Hexatronic have had problems on the Swedish market. Due to legal problems and a long winter in the beginning of the year, building fibre networks have slowed down. This combined with the high number of acquisitions during 2017 and 2018 have reduced revenues generated in Sweden from 60 % to 35 % of the total revenues. The dependency on the one marked is significantly reduced, somewhat reducing the overall risk in the Hexatronic share.
In 2018 Hexatronic’ revenues grew 23 %. In the same period the organic growth has been -6 % because of the weak Swedish market. During the past years, Hexatronic have acquired companies in key markets, the US, the UK and the German market. All three are large markets and have low penetration of fibre network. In 2018 Hexatronic acquired German Opternus (revenues 15 MEUR), British Professional Quality Management Services (revenues 4.2 MGBP) and finalised the Acquisition of US Blue Diamond Industries (revenues 29 MUSD) announced in late 2017. The weak Swedish market have put pressure on the margins on Hexatronic. The EBITDA in 2018 was 8.7 % (11.6 % in 2017). It is below the 10%-target, Hexatronic has set up for themselves.
The UK order
The order is the second order from CityFibre. In August, Hexatronic announced a 70 MSEK order in the UK market and the same customer, now named, made a follow-up on Friday worth 500 MSEK CityFibre announced last year a plan for building fibre networks across the UK. They plan to invest 2.5 billon GBP to connect 5 million homes. The current order covers the first million homes. When CityFibre choses Hexatronic for the first two steps, it indicates that Hexatronic is in a very strong position to win significant orders for the remaining 4 million homes in the next 6 year up to 2025.
The share in 2018 and 2019
The difficult Swedish market has set the tone for the Hexatronic share during 2018. To some extent, this is unjust. Despite a growth in revenues of 23%, significant orders, and the number of acquisitions the share took a beating during 2018 and fell 40 % from 78 SEK in January to 46.7 SEK just before New Year. In 2019, the share have recovered some and closed after the announcement of the order at 57.5 SEK.
Personally I expect the year-end report and the large order will set a new direction for the share in 2019. Q4 gave indications that organic growth again will add to acquisition driven growth, the Swedish market seem back on track, and we will soon see the effect of the resent acquisitions especially in the US. Only cloud on the sky is a patent infringement case in the UK where Emtelle has made an lawsuit. the past few years Emtelle have lost similar cases in Sweden and New Zealand.