FormerXBC Inc XEBEQ

TD Flash Note

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Flash Note Equity Research November 2, 2020
Please see the final pages of this document for important disclosure information. Industrial Products Xebec Adsorption Inc. (XBC-V) C$5.15 Xebec Announces Cleantech Service Network Acquisition Aaron MacNeil, CA Matthieu Beaubien, (Associate) Event Xebec announced the acquisition of The Titus Company. Impact: POSITIVE Details: Titus is a Pennsylvania-based compressed air service company with operations in Pennsylvania, Delaware, and New Jersey, and represents Xebec’s fifth acquisition to increase the geographic scope of its cleantech service network. Total consideration paid for Titus is $8.0 million and equates to a 4.8x 2019 EBITDA multiple (2019 disclosures in the press release include $12.3 million in revenue and a 13.5% EBITDA margin), with Titus expected to achieve similar levels of revenue in profitability in 2020. The acquisition was effective October 30, 2020.

TD View: Accretive Transaction: Based on our estimates, Xebec is trading at 29.1x 2021E EBITDAS and, consistent with prior acquisitions that occurred in a similar valuation range, we view this transaction’s implied multiple of 4.8x as accretive. Additionally, we expect that Xebec will be able to organically grow revenues as it layers on cleantech service operations, further improving the acquisition’s value to Xebec shareholders.

Consistent with Guidance: This acquisition is in line with management’s guidance to complete two acquisitions within “60 to 90 days” following its Q2/20 results conference call and its longer-term plan to complete 30 acquisitions by 2025. As a result, our estimates already contemplated a $5.0 million acquisition at a 5.0x multiple (see page 9 of our recent initiating coverage report).

Acquisition Likely Funded with Cash: At the end of Q2/20, Xebec had $60 million in total cash and a net cash position of $44.7 million after subtracting all debt outstanding. Estimates: Given that our estimates already contemplated a similar sized acquisition, we will update our estimates at the next available opportunity. Recommendation: BUY Risk: HIGH 12-Month Target Price: C$6.50 12-Month Dividend (Est.): C$0.00 12-Month Total Return: 26.2% 7 7 6 6 5 5 4 4 3 3 2 2 1 1 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 XBC-V: Price Company Profile Xebec is a global provider of Pressure Swing Adsorption technology, equipment that facilitates the separation and purification of mixed gasses, including renewable natural gas and hydrogen. All figures in C$, unless otherwise specified P