US And German Incentives Will Expand Zero Emission Infrastructure

Key Takeaways

• Aggressive cost reductions and maintained production capacity position Hexagon Purus for rapid margin improvement and earnings rebound as market demand recovers.
  
• Portfolio diversification, strategic partnerships, and favorable policy shifts create multiple pathways for sustained revenue, recurring cash flow, and increased market resilience.
  
• Persistent industry headwinds, financial instability, and reliance on policy support threaten revenue growth, margins, and market share, while high customer concentration increases earnings volatility.

Catalysts

Provides hydrogen and battery energy storage solutions.

• While analyst consensus expects the cost reduction program to improve margins and lower breakeven, the deeper-than-expected workforce and OpEx cuts (30 percent workforce reduction and NOK 350 million in annualized savings) could accelerate EBITDA breakeven and cash flow positivity even in a sluggish demand environment, lifting net margins much faster than projected if demand normalizes.
  
• Analysts broadly agree that capacity expansion enables future revenue growth, but the company's decision to keep all production infrastructure intact through the downturn means Hexagon Purus will be able to swiftly scale up output with minimal CapEx and capture outsized operating leverage as green hydrogen and zero-emission infrastructure markets rebound, resulting in a forceful revenue and earnings upswing when deferred projects resume.
  
• Increasing defense and aerospace activity, driven by rising global spending and geopolitical shifts in the US and Europe, substantially expands the addressable market for Hexagon Purus's high-pressure storage solutions, driving recurring revenue streams and stabilizing cash flow even through cyclical lows in other segments.
  
• Intensification of zero-emission mandates and the rollout of new government-backed incentive schemes (such as the new German and North American purchase incentives covering up to 80 percent of the cost differential for hydrogen buses) are fast-tracking commercial vehicle fleet conversions among municipalities and corporates, setting up multi-year, non-cyclical order growth that can result in sustained revenue expansion and margin accretion.
  
• The company's diversified portfolio, including battery systems and hydrogen storage, paired with active portfolio management and the potential for strategic partnerships (especially following the expanded Hino relationship and review of BVI), unlocks optionality for asset monetization, joint ventures, and accelerated technology commercialization, positively impacting future revenue, net margins, and cash generation.

Hexagon Purus Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Hexagon Purus compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Hexagon Purus's revenue will grow by 48.8% annually over the next 3 years.
• Even the bullish analysts are not forecasting that Hexagon Purus will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Hexagon Purus's profit margin will increase from -101.2% to the average NO Machinery industry of 6.1% in 3 years.
• If Hexagon Purus's profit margin were to converge on the industry average, you could expect earnings to reach NOK 273.4 million (and earnings per share of NOK 0.52) by about August 2028, up from NOK -1.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 16.3x on those 2028 earnings, up from -0.6x today. This future PE is lower than the current PE for the NO Machinery industry at 36.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.21%, as per the Simply Wall St company report.

Hexagon Purus Future Earnings Per Share Growth

Risks

• Delays in hydrogen infrastructure build-out, slow adoption of the green hydrogen economy, and project postponements by major customers have caused a steep decline in revenue, which is likely to continue suppressing top-line growth if these secular headwinds persist.
  
• Heavy reliance on public incentives and government policy, such as the new German hydrogen bus subsidy and delays or uncertainty in EU regulatory implementation, exposes revenue and earnings to potential regulatory rollbacks or changes in political priorities over the long run.
  
• The company's continued inability to achieve positive free cash flow, substantial operating losses, and high cash burn rate pose a significant risk to future net margins, and may lead to a need for future capital raises, thereby diluting shareholder returns.
  
• Competitive threats from battery-electric technology for heavy-duty trucks, alongside management's own guidance of slow hydrogen trucking adoption and limited battery electric mobility short-term visibility, risk shrinking Hexagon Purus' addressable market, which could limit revenue growth and compress future profits.
  
• High customer concentration and a lumpy, project-driven business, such as aerospace and hydrogen modules, make earnings highly volatile, with the risk that any loss or delay of a major contract will have a disproportionate negative impact on both revenue and net earnings.

Valuation

• The assumed bullish price target for Hexagon Purus is NOK6.2, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Hexagon Purus's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK6.2, and the most bearish reporting a price target of just NOK1.7.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be NOK4.5 billion, earnings will come to NOK273.4 million, and it would be trading on a PE ratio of 16.3x, assuming you use a discount rate of 11.2%.
• Given the current share price of NOK1.85, the bullish analyst price target of NOK6.2 is 70.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.