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1. Company Snapshot

1.a. Company Description

HEXPOL AB (publ) develops, manufactures, and sells various polymer compounds and engineered products in Sweden and internationally.It operates through two business areas, HEXPOL Compounding and HEXPOL Engineered Products.The HEXPOL Compounding business area offers rubber compounds, including elastomers, such as silicone and fluoro-carbon rubber; and thermoplastic elastomer and thermoplastic compounds for the automotive and engineering, construction, transportation, energy, oil and gas, consumer, and wire and cable industries, as well as manufacturers of medical technology.


The HEXPOL Engineered Products business area provides gaskets for plate heat exchangers; and wheels for forklifts and material handling applications.The company was founded in 1893 and is headquartered in Malmö, Sweden.

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1.b. Last Insights on HPOL

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1.c. Company Highlights

2. HEXPOL's Q4 Earnings: A Resilient Performance Amidst FX Headwinds

HEXPOL reported Q4 sales of SEK 4.25 billion, a 9% decrease primarily driven by a negative FX effect of SEK 436 million. The acquired companies, Piedmont and Kabkom, added 3% to sales, offset by a 3% decline in organic sales. The EBIT margin stood at 12%, impacted by FX and an unfavorable mix. EPS came in at SEK 0.984, below estimates of SEK 1.57. Operating cash flow was robust at over SEK 1 billion, driven by a reduction in working capital.

Publication Date: Feb -09

📋 Highlights
  • Q4 Sales Decline: Sales fell 9% to SEK 4.25 billion due to a SEK 436 million negative FX impact, with organic sales dropping 3% despite 3% growth from acquisitions.
  • EBIT Margin Pressure: EBIT reached SEK 508 million (12% margin), down 1 percentage point from prior year, driven by unfavorable product mix and FX headwinds.
  • Strong Cash Flow: Operating cash flow exceeded SEK 1 billion, doubling EBIT, aided by working capital reduction and lower operational costs.
  • Strategic Market Positioning: Volumes grew in Wire & Cable, Construction, and Medical segments, offsetting weak automotive demand, with deliberate acceptance of lower-margin tolling volumes to retain market share.
  • Sustainability Progress: Carbon footprint reduced by 80% via energy efficiency and green electricity use, with new sustainability targets planned for Q1 2024.

Segment Performance

The company's compounding business in Europe maintained stable organic sales, while Building and Construction, Wire & Cable, and medical segments showed increased demand, compensating for a relatively soft automotive market. As Klas Dahlberg noted, "We're investing in our sales force to grow organically," which should help drive future growth.

Guidance and Outlook

The company expects the current market uncertainty to gradually improve, with its strategic plan for 2030 being crucial to driving growth. Analysts estimate revenue growth of 3.5% for the next year, which appears achievable given the company's diversified portfolio and efforts to strengthen its sales efforts.

Valuation

With a P/E Ratio of 13.43 and a Dividend Yield of 5.54%, the stock appears reasonably valued. The company's strong balance sheet, with a Net Debt / EBITDA ratio of 0.95, supports its proposed ordinary dividend of SEK 4.20 per share. The ROIC of 10.31% indicates a decent return on invested capital. Overall, the valuation metrics suggest that the market has a relatively positive view of the company's prospects.

Conclusion on Financial Health

The company's ability to generate strong cash flows, as evident from the operating cash flow of over SEK 1 billion, is a testament to its financial health. With an EV/EBITDA ratio of 8.37, the company's enterprise value appears to be in line with its earnings performance.

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (3.57%)

6. Segments

HEXPOL Compounding

Expected Growth: 3.5%

HEXPOL Compounding's 3.5% growth is driven by increasing demand for sustainable and eco-friendly materials, expansion in the automotive and construction industries, and strategic acquisitions. Additionally, the company's focus on innovation, cost savings, and operational efficiency also contribute to its growth.

HEXPOL Engineered Products

Expected Growth: 4.5%

HEXPOL Engineered Products' 4.5% growth is driven by increasing demand for sustainable and energy-efficient solutions, expansion in the automotive and industrial markets, and strategic acquisitions. Additionally, the company's focus on innovation, R&D investments, and operational efficiency improvements contribute to its growth momentum.

7. Detailed Products

Compounding Materials

HEXPOL AB (publ) offers a wide range of compounding materials for various industries, including automotive, construction, and consumer goods. These materials are customized to meet specific customer requirements and are used in the production of rubber and plastic products.

Rubber Compounds

HEXPOL AB (publ) provides a variety of rubber compounds for different applications, including tires, belts, hoses, and seals. These compounds are designed to meet specific performance requirements, such as heat resistance, abrasion resistance, and oil resistance.

Thermoplastic Compounds

HEXPOL AB (publ) offers thermoplastic compounds for various industries, including automotive, construction, and consumer goods. These compounds are used in the production of plastic products, such as bumpers, dashboards, and other interior components.

Silicone Rubber

HEXPOL AB (publ) provides silicone rubber compounds for various applications, including automotive, aerospace, and industrial manufacturing. These compounds are designed to meet specific performance requirements, such as high-temperature resistance and electrical insulation.

Custom Compounding

HEXPOL AB (publ) offers custom compounding services, where they work with customers to develop customized compounds that meet specific performance requirements. This service is available for a wide range of industries, including automotive, construction, and consumer goods.

Recycled Materials

HEXPOL AB (publ) provides recycled materials, including recycled rubber and plastic, for use in various industries, including construction, automotive, and consumer goods.

8. HEXPOL AB (publ)'s Porter Forces

Forces Ranking

Threat Of Substitutes

HEXPOL AB (publ) operates in the rubber compounding industry, which has a moderate threat of substitutes. While there are some alternative materials available, they are not always suitable replacements for rubber compounds in certain applications.

Bargaining Power Of Customers

HEXPOL AB (publ) has a diverse customer base across various industries, which reduces the bargaining power of individual customers. Additionally, the company's products are often customized to meet specific customer requirements, making it difficult for customers to switch suppliers.

Bargaining Power Of Suppliers

HEXPOL AB (publ) relies on a few large suppliers for its raw materials, which gives them some bargaining power. However, the company's long-term relationships with its suppliers and its ability to negotiate prices help to mitigate this risk.

Threat Of New Entrants

The rubber compounding industry has high barriers to entry, including significant capital requirements and the need for specialized expertise. This makes it difficult for new entrants to join the market and compete with established players like HEXPOL AB (publ).

Intensity Of Rivalry

The rubber compounding industry is highly competitive, with several established players competing for market share. HEXPOL AB (publ) faces intense competition from companies like Lanxess, BASF, and ExxonMobil, which can lead to pricing pressure and reduced margins.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 13.87%
Debt Cost 9.53%
Equity Weight 86.13%
Equity Cost 9.53%
WACC 9.53%
Leverage 16.11%

11. Quality Control: HEXPOL AB (publ) passed 6 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
HEXPOL

A-Score: 5.5/10

Value: 5.3

Growth: 5.1

Quality: 7.0

Yield: 6.2

Momentum: 1.5

Volatility: 8.0

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Fuchs Petrolub

A-Score: 5.5/10

Value: 5.2

Growth: 5.6

Quality: 7.2

Yield: 5.0

Momentum: 3.0

Volatility: 7.0

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Stock-Card
Brenntag

A-Score: 5.3/10

Value: 6.9

Growth: 5.4

Quality: 5.2

Yield: 5.6

Momentum: 1.5

Volatility: 7.3

1-Year Total Return ->

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Evonik

A-Score: 5.0/10

Value: 6.3

Growth: 2.8

Quality: 2.8

Yield: 9.4

Momentum: 1.0

Volatility: 7.7

1-Year Total Return ->

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Stock-Card
Clariant

A-Score: 4.5/10

Value: 6.4

Growth: 3.7

Quality: 3.5

Yield: 6.9

Momentum: 0.5

Volatility: 6.3

1-Year Total Return ->

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Stock-Card
Arkema

A-Score: 4.4/10

Value: 6.5

Growth: 3.4

Quality: 2.7

Yield: 7.5

Momentum: 1.0

Volatility: 5.3

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

76.75$

Current Price

76.75$

Potential

-0.00%

Expected Cash-Flows