FormerXBC Inc XEBEQ

RE:TD Action Note - Neutral

[ZouZS3]

loll SOOOO contradictory. "RNG business represented a potential catalyst in 2022" "The quarter featured minimal new operational or strategic disclosures and we still believe that it is too EARLY to say with CONFIDENCE that Xebec will be able to deliver profitable growth. HOWEVER, the upside potential is greater than the downside risk."

Ciao wrote: TD Investment Conclusion

On February 3, 2022, we upgraded Xebec to SPECULATIVE BUY ( full-report) in a primarily valuation-based call as well as our view that its RNG business represented a potential catalyst in 2022. As noted above, the quarter featured minimal new operational or strategic disclosures and we still believe that it is too early to say with confidence that Xebec will be able to deliver profitable growth. However, we believe that the current valuation provides investors with asymmetric upside potential in the event that it does. As a result, we are maintaining our SPECULATIVE BUY rating with an unchanged $3.00 target price.

Valuation
In Exhibit 3, we compare Xebec against our Clean Technology coverage, as well as consensus comparables. Based on our 2023 estimates, Xebec is trading in line on an EV/Sales basis with Greenlane (GRN-T, SPEC BUY, $2.00 target price), which we believe is its most comparable peer.

Justification of Target Price
Our unchanged $3.00 target price is based on 1.0x our NAV calculation, presented below in Exhibit 4, and note that our NAV equates to a 2022E EV/Sales multiple of 2.7x

*** NAV depends on a 10 year forecast and the discount rate, for 2031 they estimate rev of $375M (that seems too low to me).

*** they use GRN as closest comparable as there is no other closer one, though it's very debatable, IMHO we should be getting a premium P/S multiple