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Investing.com -- Hexagon reported an unexpected 3% increase in fourth-quarter operating profit on Friday, supported by a rebound in organic growth and rising recurring revenues in some business units, despite a challenging market environment.
Shares in the industrial technology firm soared 7% in European trading.
The company, which specializes in measurement and positioning systems, posted adjusted earnings before interest and taxes (EBIT) of 450.3 million euros ($468.2 million) for the December quarter. This surpassed analyst expectations of 427 million euros, based on a company-provided consensus, which had anticipated a decline.
The company attributed its strong performance to its Asset Lifecycle Intelligence unit, which offers software solutions for industrial facility management, and its Safety, Infrastructure & Geospatial division, which focuses on public safety solutions.
"In the fourth quarter we recorded a return to positive organic growth, while maintaining EBIT margins and generating a very strong cash conversion, despite difficult macroeconomic conditions," interim CEO Norbert Hanke said in a statement.
Hexagon reported a 1% rise in organic revenue for the quarter, while recurring revenue increased by 7%.
Cash conversion reached 116%, improving from 103% a year earlier. However, the company noted that market conditions remained tough, particularly in the automotive and construction industries, and does not expect significant changes in the first quarter of 2025.
In October, Hexagon announced plans to separate its Asset Lifecycle Intelligence unit and related businesses. The company stated that it is still evaluating the process and will provide an update in the first quarter of the year.
Moreover, Hexagon proposed a dividend of 0.14 euros per share for 2024, representing an 8% increase compared to the previous year.
Morgan Stanley (NYSE:MS) analysts note that at current levels, Hexagon stock is trading at approximately 23.5 times the estimated free cash flow for fiscal year 2026. They describe this as "a relatively ’full’ valuation given the business’ pure software exposure remains <50% of the pie.”
“We see better value elsewhere in our software coverage, at the likes of Sage,” they added.