National Bank National Bank Financial analyst Rupert Merer thinks the shift toward green energy is “unstoppable” and sees “room for upside” in 2022, expecting an improved performance with stocks sitting at 52-week lows.
“Until recently, leadership in the energy transition has come from a few pioneers,” he said in a research report released Tuesday. “However, with a growing move towards decarbonization, participation in the transition has expanded. In 2022, this trend should continue and could support new partnerships and investment opportunities for energy transition focused stocks, and market consolidation. After a strong ‘20, stocks in our coverage were down 20 per cent on average in ‘21, with rising yields and a move out of green and growth stocks. Weakness has continued, with much of our coverage trading near 52-week lows. Here, we review some themes which should impact our universe in ‘22. With momentum behind the energy transition, the sector has good visibility on growth for decades, but could see headwinds from rising yields and continued impacts from the pandemic in the near-term.”
Mr. Merer emphasized the transition “belongs to everyone and will continue to accelerate,” however, after revising his valuations to account for recent underperformance, he trimmed his target for a series of stocks in his coverage universe.
His changes include:
Xebec Adsorption Inc. (“sector perform”) to $4 from $4.50. Average: $4.54.
“The RNG market continues to look attractive for new developments, given attractive subsidies for RNG production in the U.S., Canada and Europe,” he said. “With roughly $52-million in cash at the end of Q3′21, we believe that XBC will continue to target the roll up of compressed gas service companies and component manufacturers. XBC targets roughly 30 acquisitions by 2030. In the near term, the acquisition of air compressor manufacturing and service companies should provide some stability to revenues and earnings, although these segments could be lower growth than the RNG and hydrogen business units. We will look for progress in the commercialization of its BGX Biostream product and look for improvement in margins as it gains scale and experience in production.”