Global 5G And Broadband Expansion Will Fuel Fiber Adoption

Key Takeaways

• Rapid expansion in data center and harsh environment segments, combined with a strong acquisition pipeline, positions Hexatronic for outsized profit and margin growth ahead of market expectations.
  
• Unique vertical integration, global reach, and focus on high-value fiber solutions increase resilience, expand addressable markets, and drive long-term earnings power as digital infrastructure demand accelerates.
  
• Heavy reliance on volatile fiber markets, pricing pressures, customer concentration, and emerging technology threats pose risks to margins, revenue stability, and long-term growth potential.

Catalysts

Develops, manufactures, markets, and sells fiber communication solutions in Sweden, the United States, Germany, the United Kingdom, and internationally.

• Analysts broadly agree that Data Center and Harsh Environment will drive future growth, but current expectations may understate the scale and speed of impact-Hexatronic's rapid diversification in Data Center services, combined with a robust acquisition pipeline and record margins already exceeding internal forecasts, position this segment to potentially double profits over the next several years, dramatically lifting total group earnings.
  
• Analyst consensus expects margin improvement from manufacturing efficiency and business mix, but the upcoming September investor update is set to unveil targeted financials per segment and a comprehensive Fiber Solutions turnaround plan, which may catalyze an aggressive profit recovery and boost group EBITA margins above historical averages within a short timeframe.
  
• The accelerating global rollout of next-generation broadband, 5G, and data infrastructure-fueled by meaningful new tax incentives in the U.S. and reinvigorated government/private sector funding globally-are on the verge of triggering an inflection point in fiber demand from both Tier 1 and Tier 2-3 operators, expanding Hexatronic's addressable market and powering sustained multi-year revenue growth.
  
• Hexatronic's vertical integration, deep international footprint, and focus on high-value niche segments such as submarine cable and harsh environments uniquely position the company to capture premium projects at strong pricing, driving higher net margins and reducing cyclicality risk relative to less diversified competitors.
  
• Market undervaluation overlooks the secular shift to sustainability and energy efficiency in digital infrastructure, where Hexatronic's solution set is not only positioned to displace legacy copper but to command higher market share and pricing power as regulation and ESG considerations accelerate customer transitions, supporting outsized long-term earnings growth.

Hexatronic Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Hexatronic Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Hexatronic Group's revenue will grow by 2.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 4.7% today to 7.1% in 3 years time.
• The bullish analysts expect earnings to reach SEK 573.2 million (and earnings per share of SEK 2.76) by about August 2028, up from SEK 358.0 million 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 14.4x on those 2028 earnings, up from 12.7x today. This future PE is lower than the current PE for the GB Electrical industry at 22.2x.
• Analysts expect the number of shares outstanding to grow by 1.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.32%, as per the Simply Wall St company report.

Hexatronic Group Future Earnings Per Share Growth

Risks

• Over-reliance on fiber deployment cycles and the FTTH (fiber-to-the-home) segment, which currently faces maturing or stagnant demand in key geographies such as Europe and is highly exposed to customer spending cycles, risks significant revenue volatility and lower earnings once large-scale buildouts taper off.
  
• Sustained pricing pressure and signs of commoditization in core fiber and conduit products-evident from persistent low prices in North America and fierce competition in Germany-even when volumes are stable, are contributing to declining gross margins and threaten to further erode net margins as new capacity outpaces demand.
  
• Customer concentration in the Fiber Solutions business, particularly in North America, exposes Hexatronic to sudden reductions in order volumes due to customer-specific issues such as overstocking, delays in permitting, or changes in capital allocation, raising the risk of abrupt top-line reductions and earnings swings.
  
• Emergent technological alternatives to fiber, such as 5G fixed wireless access and low-earth orbit satellites, alongside shifting public stimulus programs (like the BEAD program becoming more "technology neutral"), could reduce long-term addressable markets for fiber infrastructure, resulting in subdued future revenue growth if adoption of substitutes accelerates.
  
• Dependence on an acquisitive growth model, coupled with the ongoing need for integration in newly acquired businesses and the risk of accumulating goodwill and intangibles, heightens the risk of margin dilution, potential impairment charges, and unexpected hits to reported earnings in future periods.

Valuation

• The assumed bullish price target for Hexatronic Group is SEK30.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Hexatronic Group'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 SEK30.0, and the most bearish reporting a price target of just SEK21.5.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be SEK8.1 billion, earnings will come to SEK573.2 million, and it would be trading on a PE ratio of 14.4x, assuming you use a discount rate of 8.3%.
• Given the current share price of SEK21.65, the bullish analyst price target of SEK30.0 is 27.8% 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.