Xebec Adsorption Sees BMO Initiate Coverage With $5.60 Price Target

Xebex Adsorption (TSX: XBC) is up almost 9% to $4.74 in early morning trade after BMO Capital Markets initiated coverage with a C$5.60 price target and Outperform rating, calling Xebec a “show me story”. The company has had a fall from grace as its stock price dropped from its all-time high price of $11.55, a ~60% drop.

The company currently has a weighted 12-month price target of C$5.50, a ~25% upside, between 12 analysts. One analyst has a strong buy rating, six have buy ratings and five have hold ratings. The street high comes from TD with a C$7.50 target and Roth Capital has the lowest target price at C$3.50.

In the BMO note, John Gibson says that the business should see significant growth over the next few decades but the company, “will need to execute better on its current order book and its growth program,” as BMO believes that the growth will be fueled by “global emission reduction initiatives and government programs aimed at replacing fossil fuels with biofuels/hydrogen.”

Gibson is largely bullish on the name due to them having the leading share in the renewable natural gas sector. Xebec has completed different projects that include swapping biogas for RNG to customers in different sectors such as agriculture waste, food waste, and landfills. Their most recent product is a small biogas unit which is intended to be used for smaller upgrades. Another reason why Gibson is bullish is that the company’s customers are largely utility companies, “which are in the early innings of a multidecade shift to renewables.”

Gibson believes that this company is still in its early innings and because of that, it is still a show me story. Xebec is boasting a 5.5x 2021 EV/Revenue multiple but traded as high as 20x off the back of their HyGear acquisition. The company currently trades in-line with its peer group, which has an average of 6x 2021 EV/Revenue multiple, while fuel cell developers trade at a hefty 40x EV/revenue multiple.

Gibson call’s management’s guidance of $110-$130 million in revenue, with 3-4% EBITDA margins, ambitious as their estimates are sitting around the consensus levels. They expect full-year 2021 revenue to come in at $113 million, growing to $161 million in 2022. They believe EBITDA for the 2021 year to come in at $0.4 million while they estimate 2022 to be $16.2 million.


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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