Hexagon CMD on Thursday could showcase growth opportunities and shed more light on efficiency program

Hexagon will host its Capital Markets Day on Thursday, December 7. We anticipate the company to showcase and demonstrate its growth opportunities in both business areas. In addition, Hexagon could give more color to its rationalization program that was kicked off earlier this year. When it comes to updating the financial targets, we see a slight profitability target upgrade possible given that the company is already rather close to its current target of adjusted EBIT of over 30%.

Autonomous solutions and ALI software could be among the showcased areas

Since the previous CMD in late 2021, Hexagon has made major progress in at least two areas: Autonomy and Positioning (A&P, belongs to Geospatial Enterprise Solutions) and enterprise asset management software in Asset Lifetime Intelligence (ALI, belongs to Industrial Enterprise Solutions). A&P has seen an organic growth of 18% on average in 2022-2023 which has been driven by increasing demand for autonomous solutions together with high defense spending. ALI was formed in 2022 after Hexagon acquired two fast-growing industrial software companies Infor EAM and ETQ that provide solutions for enterprise asset management, compliance, and quality management. Other interesting areas that will almost certainly be discussed include the two cloud-based platforms HxDR (geospatial) and Nexus (industrial) together with reality-capture hardware solutions that have been at the core of company’s R&D efforts in the recent years.

Rationalization program could transform the corporate culture too

Hexagon kicked off a rationalization program in 2023 with an aim to reach cost savings of EUR 160-170 million, which are to be fully realized by 2025 (~3% of sales). The company already booked a one-off cost of EUR 199 million in Q3 related to the program. In the past, Hexagon has operated in a rather de-centralized way and the numerous acquired businesses have continued their operations somewhat independently without being integrated tightly into the group. The recently initiated rationalization program aims to cut fixed costs by centralizing common corporate functions and reducing overlapping premises or other capabilities. Thus, the program also marks a change in how Hexagon manages its M&A-driven growth. Our estimates include rather modest cost-savings as we expect fixed costs (excluding depreciation) to grow by 2-3% in 2024-25 compared to estimated sales growth of around 5%.

Profitability is getting closer to the targeted level

If the company is confident about reaching the targeted savings, it could even raise its profitability target. Hexagon currently targets adjusted EBIT margin of over 30% by 2026 (2022: 29.3%). We expect the company to reach the targeted 30% by 2026 thanks to growth, increasing gross margin and modest growth in fixed costs. We do not see obvious reasons for Hexagon to change its growth target. The targeted sales growth is currently at 8-12% p.a., of which 5-7% organically.