2020 was a great year for Xebec Adsorption (Xebec Adsorption Stock Quote, Chart, News, Analysts TSXV:XBC) but there’s more upside to come, according to Beacon Securities analyst Ahmad Shaath. In an update to clients on Monday, Shaath reviewed Xebec’s latest acquisition, Netherlands-based industrial clean tech company HyGear Technology and Services.
Montreal-based Xebec, which designs and manufactures products to transform raw gases into marketable sources of clean and renewable energy, announced on December 31 the closing of its previously announced acquisition of Green Vision Holding BV, the parent company of HyGear for aggregate consideration of approximately $127.3 million and the assumption of about $28.6 million in net debt, with the purchase funded by about $65.2 million in cash and about 10 million Xebec common shares.
HyGear makes technology and products for the production, recovery, purification and mixing of industrial gases such as hydrogen and nitrogen, with 14 active patents issued in the EU and the US. Along with providing maintenance and service to clients, HyGear sells its equipment through both turnkey sales and via a Gas-as-a-Service model.
Xebec said the acquisition will give the company an entry into the industrial hydrogen and emerging hydrogen energy market, allow it to expand HyGear’s business and products into north America, expand Xebec’s product offering and give the company strong hydrogen and onsite gas R&D capabilities.
“This is the boldest move in the company’s history, with the objective to make Xebec a worldwide renewable gas leader. We are also very happy to have the strategic support of the Caisse de dépôt et placement du Québec, a large long-term institutional investor who also shares the same vision. As a result, we are now uniquely positioned to leverage a recurring, profitable, and industrial client base to support our growth in renewable natural gas and hydrogen,” said Kurt Sorschak, Chairman, CEO and President of Xebec, in a press release.
Looking at the deal, Shaath said it implies a valuation of 8.8x sales (fiscal 2019) and 29.3x EBITDA (fiscal 2019). The analyst said the two companies will fit well together from both a technology and business model perspective.
“The acquisition gives Xebec exposure to hydrogen generation, with a strong installed base of 66 systems (+12 under construction) and newly-introduced electrolyser-based offering to boost XBC’s credentials in the market. Xebec will be able to make its hydrogen offerings greener through the integration with RNG projects, giving it an enviable position of being a profitable hydrogen generation company,” Shaath wrote.
“Prior to the acquisition by Xebec, HyGear’s plans envisaged ramping up to 35 installations per year by 2023 which would have required a total investment of €15 million. The plan started with a target of 20 installations in 2019, which HyGear was relatively successful in achieving (completed 17 installations in 2019). The growth plans are well balanced with a good mix of systems (Hy.GEN and Hy.REC) as well as good mix of revenue models (turnkey and GaaS). HyGear also envisaged a high growth scenario, where a total capex of €50 million can help it achieve a production run-rate of 65 installations per year,” Shaath wrote.
Shaath also commented on Xebec’s mid-December announced acquisition of Inmatec, a German manufacturer of nitrogen and oxygen generators, saying,
“The acquisition will allow Xebec to enter the world’s largest biogas market by giving it a strong sales and service network. Additionally, Xebec will be able to offer Inmatec’s best-in-class oxygen generators in North America, which is experiencing significant growth amid the COVID-19 pandemic. While financial metrics were not disclosed, we understand that Inmatec’s EBITDA margin profile is in the middle-to-high double digit range,” Shaath said.
With the update, Shaath has revised his forecast to reflect the HyGear acquisition (but not Inmatec, which is expected to close by the end of February). He is now calling for 2021 revenue and adjusted EBITDA of $164 million and $19 million, respectively (previously $131 million and $13 million, respectively).
The analyst said Xebec has “grown well beyond its RNG business,” which will make up less than 25 per cent of its 2021 revenue, and is becoming “a well-diversified clean-technology play on gasses, providing systems and service to hydrogen, RNG, nitrogen and oxygen systems across North America, Europe and parts Asia and MENA regions,” Shaath said.
Shaath reiterated his “Buy” rating for XBC while raising his target price from $6.00 to $11.50, which he has based on a 11x multiple, a “reasonable reflection” of the company’s new reality, he said. At the time of publication, Shaath’s $11.50 target represented a projected 12-month return of 28 per cent.
Xebec Adsorption, which has a market capitalization of $950 million, finished 2020 up 319 per cent. That came after a 2019 where the stock gained 195 per cent.
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