Hexpol (Buy, TP: SEK123.00) - Undervalued earnings growth

We reiterate our BUY but have cut our target price to SEK123 (130) after lowering our 2021–2022e adj. EBIT by 3–0% as a result of short-term supply-chain issues. We still find Hexpol well positioned for sound earnings growth from its sector-leading recovery and undervalued compounding case, and forecast a 2021–2023 EPS CAGR of 9%, while M&A in line with its 5-year track record would offer 10% upside to our base case 2023e EPS. The stock is trading at a 2022e P/E of 15.5x, a 10% discount to its 5...

Hexpol (Buy, TP: SEK130.00) - Stay cool with Hexpol

After beating adj. EBIT margin consensus for the fourth quarter in a row, we believe Hexpol has proven its tight cost control and investor concerns about margin dilution from raw materials costs should ease. We like its sector-leading organic growth and margin recovery, set for a 2020–2023e EPS CAGR of 19%, and believe the M&A option is undervalued and could offer a re-rating of the stock. We reiterate our BUY and have raised our target price to SEK130 (120).

Hexpol (Buy, TP: SEK120.00) - Set to rub it in

We believe the Q2 results could prompt 3–4% positive estimate revisions for the coming years, as we are 16% above consensus on Q2 adj. EBIT. Consensus is for an 8% QOQ sales decline while we forecast a 6% increase, from: 1) 3% QOQ growth in weighted LVP production; 2) ASPs set to rise QOQ to offset higher raw materials costs (synthetic rubber +11% YOY in Q2 after -2% in Q1); and 3) fully integrated acquisitions, which could add 2% QOQ sales growth. Our 2021–2022 adj. EBIT forecasts are unchanged...

Hexpol (Buy, TP: SEK120.00) - Expecting consensus to come up

Following a solid Q1 report, we reiterate our BUY and have raised our target price to SEK120 (110), as margins remained impressive for a third consecutive quarter and confidence is growing in the M&A story. We are 11–13% above consensus on 2021–2022e adj. EBIT, and believe Q2 could offer a share-price trigger, as consensus is for a 10% sales decline QOQ while weighted LVP production indicates a 3% increase, fully consolidated M&A and higher prices are set to be a growth-driver QOQ.

Go West…

Sector profitability is set to be strong in 2021 but mounting supply chain constraints are an increasing concern. We favour US exposure (Assa Abloy, Hexpol, Dometic), mining equipment (Epiroc, Metso Outotec) and construction. We recently upgraded Alfa Laval and Hexpol (from HOLD to BUY) and downgraded Volvo and ABB (from BUY to HOLD).

Hexpol (Buy, TP: SEK110.00) - America flying the flag

Set for a strong recovery in 2021 and with sector-leading exposure to the US (which looks well ahead of Europe and China in the vaccine rollout), we have upgraded Hexpol to BUY (HOLD) and raised our target price to SEK110 (96). Consensus appears to be overlooking Hexpol’s growth prospects in the coming quarters that, given a low cost base, we expect to boost margins in the next few years. We have raised our 2021–2022e adj. EBIT by 5%, leaving us 10% above consensus.

Hexpol (Hold, TP: SEK96.00) - Needs to solve FX headwind

Following a solid Q4 report, we reiterate our HOLD but have raised our target price to SEK96 (90), as margins remained impressive for a second consecutive quarter. We are c88bp above consensus on the 2021–2022e adj. margin, which could offer c9% upside potential to estimates, but we believe a c6% FX headwind in 2021e will put pressure on growth and would need to be offset by M&A to take the stock to the next level.

Northern Lights

Northern Lights

Green is good

Average alignment with the EU Taxonomy that defines ‘sustainable activities’ could be as low as 11% for the sector. Hexagon, ABB and Alfa Laval screen best, while ‘strong’ ESG cases like Nibe and Beijer Ref’s alignments are surprisingly low. We also see a mismatch between companies’ taxonomy alignment and ESG funds’ positioning, which could have a major impact on flows in certain stocks. For 2021, our top sector picks are Autoliv, Dometic, Epiroc, Metso Outotec, Hexagon and SKF, as we favour aut...

Hexpol (Hold, TP: SEK90.00) - HOLDing on

We expect Hexpol to report additional opex reductions in Q4, and forecast EPS growth of 27% YOY. Our adj. EBIT is 7% above consensus. However, we believe the margin contribution from raw material tailwinds is fading, and given that the gross margin appears more cyclical than structural, we regard a discount to the historical valuation as warranted until there is more evidence that the M&A story can be reignited. We reiterate our HOLD and SEK90 target price.

Northern Lights

Hexpol (Hold, TP: SEK90.00) - Good cost control not enough

Following a solid Q3 report, we have downgraded the stock to HOLD (BUY) and reiterate our SEK90 target price, as we see limited triggers ahead. 2021e Adj. EBIT consensus has risen 8% since we initiated and even though we are 8% above, we believe the valuation now reflects the margin potential while the stock has closed the gap to its early cyclical peers.

Northern Lights

The new normal

Nordic Capital Goods (, ) - (69 pages)

Hexpol (Buy, TP: SEK90.00) - Set to rub it in

In our view, the sell-side is overlooking geographical mix effects in LVP, and has wrongly extrapolated an EBIT miss in Q2, explained by a 23% negative mix effect set to offer a positive delta into Q3. Falling raw material prices in Q3 could in our view have a slightly negative impact on growth, but should support higher margins, boosted by continued execution on cost synergies and cost control. We still expect organic growth of -10% in Q3, but have raised our adj. EBIT margin forecast, leaving ...

Northern Lights

Hexpol (Buy, TP: SEK75.00) - Moving up a gear

We believe Hexpol will benefit from a near-term cyclical bounce, but that consensus is still overlooking the positive geographical mix. We are well above the market on Q3e organic growth and adj. EBIT (and 7% above on 2020–2021e adj. EBIT), and see consensus coming up in H2. After a change of analyst, we have upgraded Hexpol to BUY (HOLD). We have also raised our target price to SEK75 (70), factoring in 12% potential upside if the stock’s decoupling from our peer index reverses.

Northern Lights

Hexpol (Hold, TP: SEK70.00) - Remaining on the sidelines

The slump in automotive production (c37% of Hexpol’s end-market exposure) explained much of the weakness in Q2. We expect gradual improvements throughout H2 (-11% organic growth versus H1’s -24%) but have lowered our 2020–2022e adj. EBIT by 1–3% (mainly FX) and our target price to SEK70 (76). We see a neutral risk/reward in the stock and reiterate our HOLD.