Here is the TD Report Target now $7.50Event Xebec reported Q4/20 results.
Impact: NEGATIVE Q4/20 Results:
On March 12, 2021, Xebec provided an early warning related to its 2020 results (full report). Although results differ materially from initial expectations, we view the quarter as in line with the guidance in its recent update. See page 2.
2021 Guidance: Xebec is guiding to a 2021 revenue range of between $110 million and $130 million and expects EBITDA margins in the 3-4% range. Importantly, the midpoint of management's 2021 revenue guidance ($120 million) is ~22% and ~17% below our previous estimate and consensus, respectively, with its EBITDAS margin guidance (3-4%) featuring minimal cash-flow generation. Our revised 2021 estimates now reflect the lower end of management's guidance range. See page 3.
Updated RNG Equipment Path to Market: Based on the company's recent challenges relating to custom-built RNG equipment, Xebec will sell only standardized equipment going forward, including two sizes of its recently commercialized BGX Biostream product (140 SCFM and 280 SCFM) that is containerized and addresses small volume projects, as well as two larger standardized modules (1000 SCFM and 1500 SCFM), with Xebec no longer offering installation services for its larger modules. Notably, interest in the BGX Biostream has been incredibly strong, given its lower product and installation costs, with management noting that the product currently comprises 23.8% of total quotes outstanding.
TD Investment Conclusion Although below expectations, 2021 midpoint revenue guidance implies more than 25% revenue per-share growth and continues to imply a constructive outlook for Xebec across its various end-markets (hydrogen, RNG, and other gasses). However, we believe that Xebec is firmly in "show-me" territory with investors and, based on the factors described above, we are increasing our risk rating to SPECULATIVE (from High previously), consistent with other companies in the Cleantech sector that are not expected to generate meaningfully positive cash flow in the near term. This change in risk profile requires a rating change to SPECULATIVE BUY (from Buy previously). Based on our revised estimates, and an increase in the discount rate we employ, our target price decreases to $7.50 (from $10.00 previously).