“Transformative”: Xebec Adsorption gets new $3.20 price target at M Partners

Xebec Adsorption (Xebec Adsorption Stock Quote, Chart, News TSXV:XBC) has just announced a deal that M Partners analyst Andrew Hood calls “transformative” for the cleantech company.

In an update to clients on Thursday, Hood reiterated his “Buy” rating and lifted his target price from $2.80 to $3.20 per share.

Montreal-based Xebec, which provides gas generation, purification and filtration solutions, on Thursday announced a letter of intent with Maas Energy Works, a maker of manure digesting facilities, for five renewable natural gas systems, four of which will use Xebec’s innovative small-scale containerized Biostream upgrading solution.

The deal will see Xebec supply dairy farmers with an initial four Biostream container systems, a new product offering by Xebec, with renewable gas injected into the California gas grid, “significantly reducing the State’s carbon footprint while providing a substantial revenue stream for the farmers who proudly support climate change action,” according to the Xebec press release.

Hood says that the introduction of the Biostream upgrading system will allow Xebec to compete with membrane technologies for small-scale projects whereas the company has traditionally focused on medium-sized projects. The analyst estimates that the five orders will add a total of $15 million to Xebec’s backlog, now totalling about $86 million.

“This LOI represents Xebec’s entry into the California dairy market, which is the source of a significant chunk of the state’s emissions. The smaller-scale systems are ideal for farmers and enable them to reduce emissions and generate revenues by injecting the RNG into the gas grid,” writes Hood. “We are also optimistic this LOI could lead to a longer-term relationship with Maas Energy Works, which is one of two major developers for RNG sites in California (alongside CalBio).”

Hood calls Xebec’s RNG systems the most reliable, low-cost performance for upgrading biogas and says that Xebec continues to generate new avenues for growth which come in tandem with the “massive opportunity” that the company has in existing segments.

The analyst points to government support for reducing greenhouse gases as contributing to the worldwide investment in RNG infrastructure, with the market for equipment sales in Xebec’s target markets (Canada, the United States, France and Italy) being over $6 billion.

In addition, Hood says hydrogen purification is a potential long-term growth area for Xebec.

“Xebec has exposure to important long-term growth opportunities in hydrogen purification for fuel cell electric vehicles and Power-to-Gas storage. These segments provide solutions for the future, and Power-to-Gas enables monetization of renewable electricity as well by providing storage of excess supply. In comparison to lithium-ion batteries, Power-to-Gas could provide a much cheaper, more flexible option,” Hood writes.

The analyst thinks Xebec will generate fiscal 2019 revenue and EBITDA of $48 million and $5.7 million, respectively, and fiscal 2020 revenue and EBITDA of $98 million and $13.7 million, respectively. His $3.20 target represented a projected 12-month return of 41.0 per cent at the time of publication.

Xebec’s share price has been climbing over 2019, having now risen 219 per cent year-to-date.