Hexagon Plans ALI Business Separation

Investing.com — Hexagon (ST:HEXAb) shares jumped on Friday after the company announced plans to explore the separation of its Asset Lifecycle Intelligence (ALI) business within the next 12 to 19 months.

At 4:48 am (0848 GMT), Hexagon was trading 6.4% higher at SEK 108.

> “Our initial view is more favourable as this would help a more focused approach across product sets which are not necessarily complementary under the current group structure,” said analysts at Citi Research in a note.

Hexagon also reported its third-quarter results, showing revenues of €1.3 billion, marking a 2.4% organic decline, slightly below the market’s expectation of a 0.6% drop.

The company’s adjusted EBIT stood at €377 million, yielding a margin of 29%, broadly in line with consensus estimates of 29.1%.

However, free cash flow came in at €166 million, missing both Citi’s projection of €190 million and the consensus figure of €202 million, due to higher working capital needs.

The Manufacturing Intelligence unit recorded a 2% decline, with strong aerospace demand offset by softness in the automotive sector.

Geosystems posted a 5% drop, affected by a slowdown in construction markets across Europe, China, and the U.S. Autonomous Solutions saw a 12% decline, largely due to weaker mining activity and delayed projects.

The ALI business, however, grew organically by 6%, driven by its software segment, although weaker services revenue partly tempered the gains. SIG, another division, grew by 2%, but this was offset by declines in U.S. Federal services.

> “Demand dynamics by division and end market softened further and management sees similar conditions during 4Q – which we see presenting downside to consensus view of 1-2% growth in 4Q and acceleration to ~5% growth in 2025,” Citi noted.

Regionally, North America saw a 3% drop in organic growth, while Asia recorded a 5% decline, led by an 8% contraction in China. The EMEA region remained flat overall, though Western Europe experienced a 1% decline.

The ALI division, which brought in about €980 million in trailing twelve-month revenue with a 35% EBIT margin, focuses on design software and data management solutions for large infrastructure projects, such as oil rigs and power plants.

In addition to ALI, smaller units from the Manufacturing Intelligence and Geosystems divisions—such as ETQ and Bricsys—may also be included in the spin-off.

Citi Research projects that consensus EBIT expectations for 2024 and 2025 may decline by low to mid-single digits. The emphasis will likely be on the business separation plan, as Hexagon has frequently been characterized as a collection of diverse assets that do not consistently create synergies. “In that context, the separation plan could be seen favourably,” Citi stated.