FormerXBC Inc XEBEQ

TD Comments You won't believe it

[savyinvestor333]

Event Xebec signed a Master Service Agreement with a U.S.-based RNG dairy farm project developer that includes an initial order of 18 BGX Biostream units, a list price of US $1.5 million/unit, and deliveries expected in early 2022.
Impact: MIXED TD View: Large Opportunity: This is the largest single order in the company's history. Recently, Xebec moved away from custom biogas upgrading systems to a standardized product offering and this announcement, in our view, is indicative that the company's strategy is paying off.
Limited Manufacturing Capacity: Xebec has productive capacity of 30 to 40 BGX Biostream units/year, putting a governor on near-term growth potential. However, management is actively evaluating acquisition opportunities to significantly expand its manufacturing capability.
We Expect That Near-term Margin Pressures Will Persist: Early BGX Biostream deliveries featured continued cost pressures (COVID-19-related labour hour & cost inflation) and we are now conservatively forecasting that the 18 unit sale will also feature gross margins that are below its targeted 30% to 35% range.
Estimate Changes: We view this announcement as validation of our 2022 revenue estimate rather than incremental and are not making any material changes to our 2021 and 2022 revenue forecasts. However, we are making downward revisions to our margin expectations based on the commentary above, as well as changes to our Q2/21 forecast.
As a result, our 2021 and 2022 EBITDAS estimates decrease to a loss of $2.7 million and positive $15.2 million, respectively. Details on page 2. TD Investment Conclusion We believe that Xebec remains in "show-me" territory with institutional investors and that the financial performance of its core Cleantech Systems segment will be the primary driver of near-term share price performance.
In this context, we view today's announcement as MIXED, balancing both a very robust order with continued conservatism on margin expectations. As a result, we are maintaining our SPECULATIVE BUY rating with a reduced $6.00 target price ($7.50 previously).