Down grades not so bad “Surprise” execution issues cloud the outlook for Xebec Adsorption Inc. (
), said Canaccord Genuity’s Yuri Lynk, leading him to lower his rating to “hold” from “speculative buy.”
On Friday, the Montreal-based clean energy company reduced his 2020 revenue guidance to $57-million from $70-80-million, citing “extraordinary items in its Cleantech business segment and due to the impact of the Covid-19 pandemic.”
“The company surprised us by disclosing major losses at its renewable natural gas (RNG) business,” he said. “Despite the shares cratering 31 per cent in reaction, we don’t see a compelling risk/reward. Firstly, it’s highly likely, in our view, more writedowns are taken on the 10-12 unprofitable RNG projects (it’s very hard to capture all unknown costs on the first pass). Secondly, management expects flat RNG revenue in 2021 while the rest of the industry posts double-digit growth, auguring for a lower valuation. Thirdly, 2020 featured multiple guidance reductions from management, and it will now take time to reestablish creditability with investors, in our view. The company’s saving grace is $100-million of net cash.”
After cutting his 2021 and 2022 financial projections, Mr. Lynk dropped his target for Xebec shares to $6 from $10. The average is $8.66.
Elsewhere, Raymond James’ David Quezada lowered the stock to “outperform” from “strong buy” with a $7.50 target, down from $14.50.
“While the news is clearly disappointing, the forward-looking impact is mitigated by increased diversification in the business from recent acquisitions. We believe the share price reaction is overdone,” he said.
TD Securities analyst Aaron MacNeil cut his target to $10 from $17.50 with a “buy” rating, while National Bank Financial’s Rupert Merer lowered his target to $6 from $7 with a “sector perform” recommendation.