Xebec keeps $5.00 price target at Beacon Securities

Despite the rocky quarter Beacon Securities analyst Ahmad Shaath still thinks the outlook is strong for cleantech company Xebec Adsorption (Xebec Adsorption Stock Quote, Chart, News TSXV:XBC).

Shaath delivered an update to clients on Thursday where he reviewed Xebec’s first quarter results and maintained his “Buy” rating and $5.00 target, which at press time represented a projected one-year return of 34 per cent.

Xebec’s share price was up over two per cent in trading on Thursday as the market reacted to the company’s Q1 2020 earnings, which featured revenue of $12.2 million, up from $9.8 million a year ago, and EBITDA of $0.8 million, down from $1.1 million a year earlier.

Montreal-based Xebec, which designs and manufactures products to turn raw gases into clean and renewable energy, finished the quarter ended March 31 with a backlog up $17.9 million to $89.8 million and cash on hand of $23.7 million and positive working capital of $39.7 million, up $2.8 million.

With its quarterly commentary, management maintained its fiscal 2020 guidance, calling for revenue of between $80 and $90 million and an EBITDA margin of between 11 and 13 per cent. The weaker than expected numbers for the Q1 were chalked up to COVID-19-caused order delivery delays which impacted revenue.

But president and CEO Kurt Sorschak said those revenues would arrive in the current quarter and that the pandemic has not deterred developers from moving ahead with their RNG projects.

“Xebec’s geographical diversity and the essential nature of our businesses have allowed us to continue operating and manufacturing with moderate impact on the first quarter. Our strong balance sheet and backlog provides us a solid foundation for the coming quarters,” Sorschak said in the press release.

On the Q1, Shaath had been calling for revenue of $17.4 million compared to the $13.1 million achieved, while earnings were also low, with Shaath expecting $1.4 million compared to the $0.4 million XBC earned.

At the same time, Shaath pointed out in his report that Xebec was continuing to post double-digit growth across both its segments and that a Q2 highlight was the Service Segment’s gross margin at 37.3 per cent, the strongest since Q1 of fiscal 2019, and a good step towards the company’s aim of a 40-per-cent margin.

“While Q1/FY20E results were hampered by COVID-19 pandemic, XBC remains on track for another record year in FY20E. The company should be posting another record quarter in Q2/FY20E, where revenues are poised to hit a new millstone of ~$20 million,” Shaath wrote.

“The company’s quote log continues to be strong at ~$940 million, with management confident in announcing new contract wins over the coming weeks that should support our FY21E estimates. More significantly, XBC will be announcing its new partnership on the RNG Infrastructure side next week. This should add another layer of diversification to XBC’s business and enhance its risk profile,” he wrote.

The analyst has rejigged his estimates and is now calling for fiscal 2020 revenue and adjusted EBITDA of $85.3 million and $10.5 million, respectively, and now for fiscal 2021 revenue and adjusted EBITDA of $108.5 million and $14.1 million, respectively.