Hexpol (Hold, TP: SEK140.00) - Still-balanced risk/reward

We estimate Q1 sales of SEK5,483m and adj. EBIT of SEK932m, in line with consensus. We have increased our 2024–2026e adj. EBIT by c1% on average, mainly reflecting updated FX. We reiterate our HOLD, but have raised our target price to SEK140 (130) on updated valuation and estimates.

Hexpol (Hold, TP: SEK130.00) - Minor estimate changes post-Q4

Hexpol’s Q4 results were on the light side versus our estimates and consensus (c2% miss on adj. EBIT), with a seemingly largely unchanged demand situation QOQ. The raised dividend policy (from a c25–50% to a 40–60% pay-out ratio) was already reflected in our model, while the extraordinary dividend was more of a surprise (although we had flagged the possibility). We have lowered our 2024–2025e adj. EBIT by c1% on average, and reiterate our HOLD and SEK130 target price. We see limited upside poten...

Hexpol (Hold, TP: SEK130.00) - Closing in on its fair value

Ahead of the Q4 results (due on 26 January), we have lowered our 2023–2025e adj. EBIT by 3% on average after factoring in updated FX and recent M&A. We expect Q4 sales of SEK5,095m (c-10% organic growth YOY) and adj. EBIT of SEK855m, both just below consensus. We have raised our target price to SEK130 (125) on recent peer multiples expansion; however, with limited potential upside following the c30% rally in the shares since early October, we have downgraded Hexpol to HOLD (BUY).

Decoding Alpha

Our analysis of underlying total shareholder return (TSR) drivers for Swedish Industrial companies reveals that high returns are not synonymous with high valuations. Investors tend to overpay for ‘growth’, while cash returns such as dividends and buybacks are typically deeply discounted. We believe Autoliv, Alfa Laval and Hexagon offer the most long-term TSR potential (13–14% annualised), with SKF and Trelleborg at the other end of the spectrum (8–9%), while also concluding that several stocks l...

Hexpol (Buy, TP: SEK125.00) - Cash flow generator at a discount

Q3 was in line overall, with a solid adj. EBIT margin and strong cash flow generation. We have made limited estimate changes, and believe the negative sales price effect is fading (weighing less on organic growth). Hexpol said it is still looking for M&A opportunities; we believe it has scope for M&A, dividends and buybacks. We reiterate our BUY and SEK125, and continue to see an attractive valuation.

Hexpol (Buy, TP: SEK125.00) - Potential for share buybacks

Ahead of the Q3 results (due at 13:00 CET on 27 October), we have upgraded Hexpol to BUY (HOLD) and raised our target price to SEK125 (122), as we see an attractive entry point following the recent weak share price performance, but stable LVP production outlook, continued FX tailwinds, and recent oil price movements, which support price hikes for Hexpol’s products, in our view. We see a case for the board initiating buybacks given Hexpol’s balance sheet strength and strong cash flow generation; ...

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Hexpol (Hold, TP: SEK122.00) - Better entry points ahead

Q2 was overall in line with our expectations, hence we have made only moderate underlying estimate changes, while our updated FX has led us to cut our adj. EBIT by on average c3% in 2023–2025e. We see the valuation as close to fair, while end-markets (ex. auto) are generally becoming tougher, with few likely positive catalysts ahead. We reiterate our HOLD but have cut our target price to SEK122 (128).

Hexpol (Hold, TP: SEK128.00) - Few catalysts on the horizon

We expect Q2 sales of SEK5,802m, with c-5% organic growth YOY and adj. EBIT of SEK909m, roughly in line with consensus. We still see limited upside potential, with lacklustre 2023-25e EPS growth, and believe the valuation (relative and absolute) is largely fair. We have made limited estimate changes and reiterate our HOLD and SEK128 target price.

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Vital Signs: Actionable charts

In this product we rank the most positive and negative domestic stocks, filter the symbols by market-cap and trading volume, and then divide the companies into sectors and groups. We then manually look through charts leadership/changes, bottoms-up/top-down ideas, short-term patterns that may have long-term significance, etc. We believe you will find this product valuable as significant price and relative moves begin in the daily charts.

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Hexpol (Hold, TP: SEK128.00) - Still trading close to fair value

Q1 sales were c3% below our forecast and consensus, while adj. EBIT was c2% above, with a solid margin. We have lowered our 2023–2025e adj. EBIT by c1%, and our target price to SEK128 (130). We reiterate our HOLD, as we view the valuation as fair (12-month forward EV/EBIT of c12.5x, in line with its historical average).

Still going strong

Although reported EU taxonomy alignment for the sector is low, we have identified which companies screen best and could benefit from attracting ESG capital. We still favour China, mining, energy and aftermarket exposure, and see upside potential to consensus estimates, but view overall risk/reward as neutral on elevated valuation.

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Hexpol (Hold, TP: SEK130.00) - Undramatic quarter

We forecast Q1 sales of cSEK6.2bn and adj. EBIT of SEK928m, broadly in line with consensus. We have raised our 2023–2025e adj. EBIT by c2% on average ahead of the report and increased our target price to SEK130 (120), partly on our updated valuation (peer multiples expansion). We see limited upside potential and reiterate our HOLD.

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Hexpol (Hold, TP: SEK120.00) - Balanced risk/reward, downgraded to HOL...

Q4 adj. EBIT was in line with consensus and our forecast, driven by solid margins as 10% organic growth was lower than expected. Given the seemingly low volume growth, updated FX, general industrial slowdown risk and potential for price deflation, we have cut our 2023–2024e adj. EBIT by c5% on average and our target price to SEK120 (128), implying limited upside potential. We thus consider the risk/reward balanced and have downgraded Hexpol to HOLD (BUY).

Industrial blues

DNB Markets’ Strategy and Macro team suggests being underweight industrials, due to the sector’s premium valuation and risk of >10% earnings cuts in 2023 from a cyclical slowdown. Our sensitivity analysis shows Volvo, Dometic and Autoliv have the greatest downside risk to earnings in a cyclical slowdown, while Assa Abloy and Hexagon (two of our sector top picks) should be most resilient. We prefer mining, energy, aftermarket and China exposure.

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