Hexagon Q2'25: Recovery in growth triggered a revaluation

Hexagon’s Q2 report offered some relief to the market, with organic growth slightly exceeding the low expectations. However, geopolitical challenges and continued FX headwinds keep uncertainty elevated, prompting a new cost-saving program from the company’s renewed management team. The share currently appears fully priced, even though the upcoming strategic changes in 2026 could provide greater clarity on the company’s future direction. We downgrade our recommendation to Reduce (was Accumulate), while slightly raising our target price to SEK 110 (was SEK 105), reflecting somewhat lower market risks compared to the time of our last report in early May.

Source: Inderes & Bloomberg  (consensus includes 17 estimates)

Organic growth slightly above expectations in Q2

Hexagon delivered a solid Q2, with revenue growing 3% organically (vs. our 1% forecast), marking the strongest growth since Q1’2024 and supporting our view of a gradual recovery. Recurring revenue rose 4%, although growth slowed slightly. Total revenue grew by 1% and exceeded consensus by 1.5%, held back by a -4% FX impact and supported by a 2% contribution from M&A. Outperformance came from Manufacturing Intelligence and Autonomous Solutions, driven by strength in manufacturing, aerospace, and defense, while the automotive sector and U.S. federal services remained weak. Adjusted EBIT declined to 361 MEUR (Q2’24: 400 MEUR) due to FX effects (-35 MEUR) and higher fixed costs. EBIT was in line with consensus and marginally (3%) below our estimate. Gross margin held steady at 67.0%, and EPS declined to EUR 0.084. Cash conversion improved to 104%, and net debt increased to 3,888 MEUR (1.9x EBITDA), which we consider a healthy level.

Market uncertainty results in another savings program

The recovery in organic growth seen in Q2 is a positive sign, but there remains considerable uncertainty about market development in H2 (we forecast 4% organic growth). Hexagon announced that it is working on a new cost-saving program (the previous one concluded in 2024), with details to be released in the Q3 report at the latest. We interpret this initiative as a response to slower-than-expected revenue growth and ongoing geopolitical headwinds. Our revenue and adjusted EBIT estimates have been minimally revised downward due to greater-than-expected FX headwinds and the planned divestment of non-core businesses in Safety, Infrastructure, and Geospatial, totaling 90 MUSD in revenue.

Strategic changes ahead

Hexagon’s new CEO, Anders Svensson, took over last week and will lead the company’s transformation, which includes: 1) a new cost-saving program, 2) the separation of Octave (mainly data and software) in H1 2026, and 3) a new strategy for the remaining businesses, focusing increasingly on precision measurement technologies. We believe these changes could sharpen the company's focus, given its current complex structure and the differing value-creation potential across business units.

Tightened valuation does not leave upside

With a fair-value-adjusted EV/EBIT multiple of 17x, we estimate that the share value could rise to SEK 128 by 2027 (including cumulative dividends), assuming average adjusted EBIT growth of 4% p.a. in 2025-2027. This would imply an annual return of 7%, slightly below the required rate of return. If Hexagon achieves its 2026 financial target of a 30% adjusted EBIT margin including PPA (equivalent to 31.3% in our estimates), which currently appears unlikely, there could be an additional 10-15% upside beyond the required return. However, the current short-term adjusted EV/EBIT multiple of 19.4x for 2025e leaves no upside.