Xebec has a lot of red flags, this investor says
Kurt VS Del Vicario. Over the past ten years, Xebec has had a tremendous run [but] we look at the stock in the short term here its come off from about $11 to $4.85, says Del Vicario. But if we really want to look at the fundamentals, Im seeing a company here that has never printed a positive free cash flow. So right there, that would be a red flag for us, something that would prevent us from buying the shares. I also see that theyre issuing new shares so theyre diluting existing shareholders, he said. Xebec got in hot water earlier this year when it lowered its overall revenue guidance for 2020 from $70 to $80 million to $57 million, which was then confirmed in a March 25 reporting of its fourth quarter and full year financials. Xebec hit $56.5 million in 2020 revenue compared to $49.3 million for 2019, while adjusted EBITDA was a loss of $22.0 million compared to a gain of $7.0 million in 2019 and the company ended up with a net loss of $28.3 million compared to a loss of $0.5 million for 2019. Despite positive developments in certain segments and acquisitions that we believe position us well for the future, 2020 was a challenging year for Xebecs financial results as a result of different factors, including the negative impact of COVID-19, said Kurt Sorschak. Del Vicario thinks investors need to put the uncertainties around where renewables are headed into their thinking around companies like Xebec. [Xebec] is very much a renewable energy buzzword type of play, but it remains to be seen from our view how the business model does long term, Del Vicario said. The one thing that I will say with these types of companies is Im always very curious whether their product or service stands on its own two feet, absent government subsidies and support. So, right now, the Liberals in Canada and the Democrats in the United States are very supportive politically of renewable energy. But that could change if we have a different type of government or theres just a different route that politicians want to take. Those subsidies and that support can vanish overnight, and if a company like Xebec or even Tesla doesnt have a product that can sustain itself in a normal economic environment, absent subsidies and handouts from the governments, that would obviously be a huge red flag for us, he said. So, I would size this position accordingly. I would have this as a very low conviction position at about a one or two-per-cent weight in a portfolio, max, Del Vicario said. Given the trajectory of the economic recovery and the RNG and hydrogen industry activity, we believe we are at the start of a significant economic upturn that will support the companys continued rapid growth, said Sorschak in a press release. There are positive indications for increased manufacturing activity across North America and Europe, alongside accelerated decarbonization cuts which will drive traction for our cleantech solutions, he said.