Xebec Adsorption: Canaccord Smacks Price Target Down From $5.00 To $2.25

Last week, Xebec Adsorption (TSX: XBC) announced its fourth quarter and full-year financial results. The company reported fourth quarter revenues of $45.9 million with a gross margin of $10.3 million, or 22%. The company saw its first quarter of positive adjusted EBITDA, with it being $0.2 million compared to a ($22.6) million loss last year. Additionally, the company saw it’s first positive net income quarter as well, reporting $2.4 million in positive net income or a $0.02 earnings per share.

For the year, the company reported revenues of $125.9 million, up from $56.5 million in 2020. The company had a 23% gross margin, or $29.5 million, after costs of gold sold were deducted. Though the company saw its full-year adjusted EBITDA and net income be negative, however this was at a smaller loss than was reported in 2020. The company had full-year adjusted EBITDA of ($23.5) million and a net loss of ($23.5) million for an earnings per share of ($0.15).

The company reported total assets of almost $500 million, of that $50 million is cash and $61.6 million was trade receivables. Xebec also noted that as of March 16th, 2022, they had roughly $123.8 million in backlog sales, up from $100 million around the same time last year.

After the results, Xebec announced that Jim Vounassis will be the company’s President and CEO effective immediately, which has accelerated from the prior May 12, 2022 start date. Previously, Vounassis served as COO for the company. The now old CEO and President, Kirt Sorschak, will remain Chairman of the Board until May 11th, 2022, then will retire from the Board.

A number of analysts lowered their 12-month price target bringing the average 12-month price target down from C$3.86 to C$3.31, which represents a 62% upside to the current stock price. Xebec Adsorption currently has 13 analysts covering the stock, with 5 having buy ratings and the other 8 have hold ratings. The street high sits at C$6 from Craig Hallum and represents an almost 200% upside to the current stock price.

In Canaccord’s fourth quarter and full-year review, they lower their 12-month price target from C$5 to C$2.25 and cut their rating from buy to hold after the company missed on its own guidance. In making the adjustments, they stated, “The company’s difficulties accurately forecasting its own financial performance throughout all of 2021 is worrisome.”

They also add that the company’s “transformative” acquisition of HyGear and UEC grew less than 10% year over year together on an annualized basis. Which they write, “pales in comparison to the growth being demonstrated by others in the space,” and that they are under the belief that hydrogen mobility won’t see growth for the “foreseeable future.”

On the results, the company slightly beat Canaccord’s revenue estimate of $44.9 million, though that is basically all it beat on. It missed on Canaccord’s $15.2 million gross profit and 33.9% margin estimates. They also missed on adjusted EBITDA, for which Canaccord was expecting $3.9 million, or an EBITDA margin of 8.7%, while the company reported just $0.2 million in EBITDA, equal to a margin of 0.4%.

With that, Canaccord believes that the company’s gross margins will likely remain under pressure as its legacy RNG projects are still running at cost, while supply chain issues the company have only intensified over the last few months. They also believe any gross margins on the company’s Biostream units will be small due to Xebec having to entice customers to try these untested and first-of-a-kind units. They write, “Xebec’s business model has proven vulnerable to externalities over the last year and a half with increased costs to complete projects a common reoccurrence.”

Canaccord notes that management remained upbeat on their commentary for the demand of it’s products, though supply chain issues have put a lot of uncertainty around it, therefore they will suspend annual guidance.

Below you can see Canaccord’s updated full-year 2022 and 2023 estimates.

Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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