Hexagon Composites: Niche Leader in Low-Carbon Energy Transition

Ole Søeberg of Nordic Investment Partners presented his investment thesis on Hexagon Composites (Norway: HEX) at European Investing Summit 2021.

Thesis summary:

Hexagon Composites is an investment in the low-carbon energy transition. The company is a world leader in lightweight composite cylinders for storage and transportation of gases under pressure. The global installed base of pressure cylinders is 1.1 billion units and mainly made in steel, while only 19 million are lightweight composite cylinders.

Hexagon plays several strings in the roadmap for a lower carbon footprint. They get a predictable cash flow from low pressure tanks for grill, leisure boat, and home use; they grew a substantial business from 2019 to the late 2020s from large tanks for RNG and LNG tanks for trucks, busses, storage, and trains; and after 2024 a significant growth engine kicks in as high-pressure composite tanks for hydrogen cars, trucks, busses, and vessels start to take off.

The NOK 3.5 billion revenue stream is expected to reach NOK 8-10 billion five years from now. An EBITDA margin of 15% supports a price objective of NOK 50-60 over this period, suggesting an estimated return of ~14% annually.

Short-term risks include a component shortage, while longer-term risks include competition from the cooling of hydrogen instead of the use of high pressure methods.

Read a related article by Ole on investing in the transition to green energy.

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