Beacon doubles price target on Xebec Adsorption to $7.00

Big news from Xebec Adsorption (Xebec Adsorption Stock Quote, Chart, News TSXV:XBC) has earned a bullish new target price from Beacon Securities analyst Ahmad Shaath.

This morning, Xebec announced its very first Canadian Renewable Natural Gas (RNG) infrastructure project. The project, located in Quebec, will take the form of a partnership with Bahler Biogas Inc. The company says the planned facility will process more than 45,000 metric tonnes of organic waste per year through an anaerobic digestion process.

“It is great to finally see our first BOO project move forward, Xebec CEO Kurt Sorschak said. “It showcases how local partners can come together to create a community-based sustainable waste solution for a true circular economy. Renewable natural gas presents a unique opportunity to both divert organic waste from landfills and produce a valuable source of clean energy to displace fossil natural gas and create a biofertilizer for farmers. Xebec plans to be a valuable technology provider and financial partner in the waste-to-RNG space in Canada.”

Shaath says Xebec’s track record of successful execution continues with this announcement.

“With today’s announcement, XBC ticked one of the major boxes that management has been promising since first mentioning the discussions of the project’s MoU in Q4/FY19. We also note that the conversion of its Maas LOI into purchase orders tracked ahead of management’s guidance of 12-14 weeks (<10 weeks to be precise). Additionally, XBC has been successful in ramping up revenue, which has been in the range 130%-200% y/y on quarterly basis in YTD/FY19. Xebec continues to build its track record of solid execution, which is key on its path of second year of triple-digit (profitable) revenue growth.”

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In a research update to clients today, Shaath maintained his “Buy” rating but doubled his price target on Xebec from $3.50 to $7.00, a figure that implied a return of 69 per cent at the time of publication.

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The analyst thinks XBC will post EBITDA of $5.9-million on revenue of $48.5-million in fiscal 2019. He expects those numbers to improve to EBITDA of $11.7-million on a topline of $96.3-million the following year.

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The analyst said even with the doubling of his target, Xebec’s valuation is still reasonable.

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“XBC has successfully established its RNG Infrastructure business and continues to deliver impressive growth in its CleanTech backlog,” the analyst concluded. “The company is building a solid track record of execution and delivering on its promises, which is a rarity in Canadian small-cap universe. The company continues to build its reputation as market leader in the fast-growing RNG market in North America and has a bullet-proof balance sheet to help establish its Service Segment though M&A and grow its RNG Infrastructure business further. This has resulted in realizing an exceptional multiple expansion, where XBC currently trades at 3.9x EV/Sales (FY20E). Despite XBC’s superior topline growth and margin profiles, its valuation remains below its CleanTech peers trading at an average of 7.2x EV/Sales (FY20E). Consequently, we are raising our target price to $7.00 (from $3.50), applying an EV/Sales multiple of 7.0x FY20E Sales (vs. 4.0x FY20E Sales and 15x FY20E EBITDA previously). BUY!”