Here is the Beacon Report with a different view of BoistreamThree-Year Strategy and FY24E Financial Targets Outlined.
Yesterday, the company hosted its first investor day at its UEC facilities in Colorado. Xebec unveiled its threeyear strategic plan, headlined by FY24E financial targets of:
1) Revenue of $300- $350 million and 2) Adjusted EBITDA margin of 8%-10%. Operationally, XBC is organizing its business around product-focused “Centers of Excellence” 1) PSA, 2) Hydrogen, 3) RNG, 4) Compressions 5) Dryers and 6) Oxygen and Nitrogen. The company is unifying its service offerings under the brand name “XBC Flow Services” (Figure 1).
Overall, the conference and the strategic plan provided a good snapshot of the company’s various strategic targets it provided to the market over the last 12-24 months during various conference calls. In summary, XBC is still targeting 50%/50% revenue split between products and service, RNG to be focused purely on BGX Biostream and away from customized systems and rolling out HyGear and Inmatec products in North America.
MoU for a Potential Order of In Excess of $126 Million. Xebec announced (March 28th) the signing of an MoU with SCS Carbon Removal LLC, a subsidiary of Summit Carbon Solutions. The MoU is for a potential order for 51 cardoon dioxide reciprocating compression packages with a total value in excess of US$ 100 million, to be completed by the end of Q3/FY23E. SCS plans to use the compressions systems for its proposed US$4.5 billion carbon dioxide capture/sequestration project of ethanol plants and related infrastructure in Iowa, Nebraska, South and North Dakota, and Minnesota.
The project is expected to be the largest CO2 sequestration project in the world when commissioned with a 12 million tons of CO2 per year capacity, equivalent to removing 2.6 million vehicles from our roads annually. Maintaining Estimates and TP, Ramp Up in UEC is Key.
We maintained our estimates for FY22E and FY23E. For reference, compared to our FY23E forecasts, the company’s FY24E targets (at the midpoint) imply revenue growth of ~56%, adjusted EBITDA growth >210% and adjusted EBITDA margin expansion of 4.5 pps. This is underpinned by two key assumptions 1) BGX Biostream manufacturing achieving 100 units per annum (vs 4 units in FY20), which is expected within 12 months and 2) Service segment achieving annual revenues of ~$150-$175 million by FY24E (vs. FY21 of ~$58.0 million and our forecasts for FY22E of ~$93 million).
Finalizing the MoU with SCS (which we do not reflect currently) makes the product revenue targets achievable, contingent on XBC building on its presence in that market to secure more orders. As it relates to BGX Biostream, we believe the opportunity for 100 units in annual sales is there. XBC showcased the “second generation” of BGX Biostream that is more competitive vs. membrane-based systems and should help adoption of off-the-shelf product in a market accustomed to customized products.
XBC Flow Services will also facilitate adoption of BGX Biostream. On that front, management indicate that FY24E revenue targets are mainly driven by organic growth, implying a 3-year CAGR of ~22% vs the segments Q4/FY21 revenue run-rate. We did not make any changes to our forecasts and elected not to model FY24E estimates. We continue to base our $2.50 target price on FY23E revenues, applying 2.1x multiple. Catalysts that could lead us to revisit our assumptions include 1) Finalizing the MoU with SCS, 2) Securing financial partner for decentralized hydrogen hubs and 3) Meaningful BGX Biostream orders (>50).