The Q1 report from Hexatronic came out Friday last week. Traditionally Q1 is the weakest quarter. Furthermore, Easter was in Q1, which affects revenues negatively. And it has been a harsh winter. Nevertheless, Hexatronic came out with a 16 % growth and higher profits compared to Q1-17. I added a few more shares after the report.
Strong growth despite a hard winter
Before the report, I was a worried. Easter is one thing, mentioned in hundreds of Q1-reports this year. The other is that many of Hexatronic’s products are to be dug into the ground. With a very cold winter, delays have hit lots of projects and Hexatronic has built a large inventory during the quarter (+30 % compared to Q1-17) affecting cash flow negatively. The organic growth during Q1 was -6 %, in that respect my worries were right. On the other hand, the acquired American company, Blue Diamond Industries (acquisition announced in December), developed very well – and the overall growth is 16 %.
Earnings per share was 0.30 SEK – compared to 0.25 SEK in Q1-17. EBIDTA margin was 7.1 % and on the same level as last year.
The strong dependency on the Swedish market has been a topic in the reports and presentations the past years. In Q1 revenues from the Swedish market was for the first time less than half of total revenues. Last year it was 57 %, this year it has fallen to 40 %. There is no doubt that the huge differences between quarters will level out as Hexatronic becomes more global. Today mainly the New Zealand market and to a limited extend the American market offsets the Swedish winter in terms of sales.
The CEO, Henrik Larsson Lyon, expects only limited sales on the American market in 2018, but expects it to contribute substantially in 2019. He has mentioned this on more occasions, but without much explanation. It is unclear therefore if this reflects further, planned acquisitions or a long-term sales plan to gain foothold. In a few years, we will probably have a more even distribution of revenues between quarters.
Growth in 2018
Judging from the report and an interview with the CEO, growth in 2018 will come from:
- The Nordic counties. The Swedish market will be strong and the same goes for Norway and Finland where Hexatronic is hiring.
- UK and Germany. Both markets are well behind the rest of EU and have ambitious plans for building fibre network.
The main drivers on both markets are primarily building the infrastructure securing homes access to fibre network. Growth-step number two, which will pick up speed shortly, is building the infrastructure for the 5G-network. This demands fibre as the 5G wireless range is shorter than at the current 4G-network, and hence needs more connection points.
Hexatronic’s aim is to gain local presence through acquisitions. Therefore, in order to gain stronger presence on the UK and German markets, we will probably see one or more acquisitions in the coming months. On the Nordic markets, my guess is that we will see high organic growth as we did last year.
The share price have had its ups and downs since New Year. At highest, the share touched 80 SEK in January. Then it began to slide and by the beginning of April, it was at 53 SEK. Since it have recovered some. After the report, the share lifted 9 %. Compared to the beginning of the year, the share is down 19 %.
Personally, I added a few more Hexatronic shares after the report. I expect a very strong 2018 where high growth and profitability will go hand in hand.