Xebec Adsorption has a 65 per cent upside, says M Partners

Updated guidance from cleantech company Xebec Adsorption (Xebec Adsorption Stock Quote, Chart TSX:XBC) is no cause for concern, says M Partners analyst Andrew Hood, who on Friday reiterated his “Buy” recommendation and $2.20 target price.

Ahead of Xebec’s full year 2018 financials due on April 17, management announced on Thursday that it had updated its guidance for 2018 and 2019 due to the application of a new IFRS 15 accounting standard, which requires the company to forego recognition of revenues as a percentage of completion and calls for the company to wait until completion of projects occurs. As a result, $5.5 million in revenues expected to be accounted for in Q4 2018 are now pushed to 2019.

Hood says the impact is effectively nil.

“It is important to understand that this change in guidance merely reflects proper accounting measures and shifts revenues and earnings a couple quarters into the future. As a result, we are maintaining our valuation of $2.20/share based on 18.0x 2020 EBITDA,” he said.

The analyst is calling for 2018 revenue and EBITDA of $20 million and negative $2.1 million, respectively, and 2019 revenue and EBITDA of $51 million and $6.6 million, respectively. His $2.20 target represents a return of 65 per cent at the time of publication.