FormerXBC Inc XEBEQ

RE:On a brighter note

[Ridgeback]

Event We are initiating coverage on Xebec Adsorbtion Inc. with a BUY rating and $6.50 target price.

Note: A more detailed report will be published later today Product Portfolio a Beneficiary of Secular Environmental Trends: Xebec’s core product portfolio has found applications in the build-out of Renewable Natural Gas (RNG) and Hydrogen infrastructure. Specifically, Xebec’s adsorption technology purifies raw input gasses into environmentally friendly fuels that meet stringent commercial specifications and is a key component of each of its end-market fuel production. Infrastructure investment that addresses global warming is accelerating, and is being driven by ‘green’ government fiscal stimulus and by corporations in Xebec’s case gas utilities that are increasingly being graded on an Environmental, Social and Governance (ESG) scorecard. We believe that Xebec has a preferential product in the cleantech end-markets that it serves and, as a result, a compelling case for significant growth can be made.

Opportunistic M&A Strategy: Xebec is taking advantage of its current valuation (2021E EV/EBITDAS of 23.5x) to buy related industrial businesses that sell and service compressed air dryers and filtration systems between 4x and 6x EBITDAS. Xebec intends to transform this growing geographic network of legacy businesses into its service and support platform for its Cleantech Solutions segment products. This strategy not only has a strong fundamental case, but it is also incredibly accretive to Xebec shareholders, based on our estimates. Profitability a

Differentiator: The company has already demonstrated an ability to generate positive earnings, which we view as a key differentiator compared with other cleantech and early-stage growth investments.

TD Investment Conclusion We believe that Xebec checks several boxes for growth-oriented investors, including: a strong ESG case featuring both the environmentally focused trends that underpin its growth narrative and strong insider ownership (CEO: 7.2%), a track-record of successful project execution, including full-cycle service, profitability, and a preferential technology that sets it apart. Although a presumption of future growth is reflected in Xebec’s current valuation, we believe that our NAV calculation contemplates fairly conservative assumptions while still implying a much higher valuation. As a result, we are initiating coverage on Xebec Adsorption Inc. (XBC-V) with a BUY rating and $6.50 target price. 6 6 5 5 4 4 3 3 2 2 1 1 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 XBC-V: Price C