Hexatronic's Strategic Pivot: Navigating FTTH Challenges to Unlock Growth in High-Margin Segments

Hexatronic Group's Q2 2025 results reveal a company at a crossroads: struggling with margin pressures in its traditional Fiber Solutions business while accelerating growth in higher-margin segments like Data Center and Harsh Environment. The mixed signals from this quarter's performance highlight both near-term challenges and long-term opportunities. For investors, the question is whether Hexatronic can execute its strategic shift effectively to re-rate its valuation.

The FTTH Overcapacity Headwind

The Fiber Solutions division, which accounts for roughly 64% of Hexatronic's sales, saw its EBITA collapse by 54% year-on-year in Q2 2025. The root cause is clear: oversupply in the FTTH (Fiber-to-the-Home) equipment market has intensified price competition, squeezing margins. While regulatory tailwinds for broadband infrastructure remain strong in many regions, overcapacity has created a vicious cycle of discounting to secure projects.

This segment's struggles are not unique—global FTTH players like Prysmian and Commscope have also faced margin dilution. However, Hexatronic's response matters more now, as Fiber Solutions' EBITA contribution to the group has shrunk from 76% to 41% since 2022. The performance improvement program, which includes cost discipline and portfolio pruning, is critical to stabilizing this division.

The Bright Spot: Data Center and Harsh Environment

While Fiber Solutions falters, Hexatronic's Data Center and Harsh Environment segments are outperforming. Data Center sales surged 38% in Q2, driven by hyperscaler demand for high-density cabling systems and cloud infrastructure. EBITA margins here expanded to 21%, up from 16% in Q2 2024, reflecting operational leverage. Similarly, the Harsh Environment division, which supplies ruggedized solutions for oil & gas and industrial clients, grew sales by 4% and EBITA by 5%, showcasing resilience in cyclical markets.

These two segments now generate 59% of the group's EBITA—a stark reversal from 2020, when they contributed just 28%. Their margin profiles (21% and 12%, respectively) are significantly higher than Fiber Solutions' 6.4%, making them the key lever for margin recovery.

Valuation Catalysts: Margin Expansion and Strategic Clarity

Hexatronic's net debt/EBITDA ratio of 1.9x remains comfortably within investment-grade thresholds, providing flexibility for reinvestment. However, the market has yet to reward this transition: HEXA's stock trades at 9.2x consensus forward EBITDA, a discount to peers like Panduit (12x) and TE Connectivity (14x). This gap could narrow if two conditions materialize:

1. Margin Uptick in High-Growth Segments: If Data Center and Harsh Environment margins can expand further (say, to 25% and 15%, respectively), their combined EBITA contribution could hit SEK 450 million annually by 2026—up from SEK 282 million in 2024.
2. Fiber Solutions Stabilization: A 10% margin recovery in Fiber Solutions (from 6% to 16%) would add SEK 150 million in annual EBITA, assuming flat sales.

The September Investor Update is pivotal here. Management must provide clarity on:
- Specific cost-saving targets (e.g., reducing FTTH SG&A by 15%).
- Pipeline visibility for Data Center contracts (e.g., hyperscaler wins in APAC).
- R&D spend allocation for next-gen solutions like liquid-cooled cabling.

Risk Factors and Investment Thesis

The main risks are execution: overcapacity in FTTH could persist longer if governments delay broadband subsidies, and Data Center demand might slow if cloud spending moderates. However, Hexatronic's balance sheet and brand portfolio (Viper, Stingray, Raptor) give it durable niche advantages.

For investors, HEXA is a compelling “value-to-growth” play. At current multiples, even a 20% EBITDA margin expansion across its portfolio could push the stock price up 30-40%. A cautious entry point would be post-Q2 results, with a target on the September Investor Update. Aggressive investors might accumulate now, given the stock's 12-month underperformance (-18%) versus the OMX Stockholm 30 Index (+6%).

In conclusion, Hexatronic's strategic shift is far from complete, but the data shows it is executing the right moves. The next three months will test whether this pivot can transform short-term pain into long-term gain.