--- the subscriber area has no ads and those above are not selected or endorsed by this site ---

Xebec halted, Lumen Edge & more ?3

18:22 08-Dec-20

Xebec's news is the purchase of HyGear, a Dutch on-site hydrogen generation and fuel cell provider, for $65.2M in cash and 10.3M XBC shares.  Two other transactions are also expected to close soon, with non-binding letters of intent to buy an industrial gas generation and specialty compressed air treatment & services businesses.  To fund the acquisitions, management is selling about 23M shares at $5.80, with about a third of those going to CDPQ, to raise $150M.  That's over 20% dilution, but at a correspondingly high historical price.

Management says this deal accelerates Xebec's move into hydrogen, and Hygear's founder and CEO will lead Xebec's European business.  The potential for cross-pollination of both the technologies and sales channels is clear to me.  Hygear is also profitable, with €2.5M of operating income from €11.4M of revenue and double digit percentage growth is expected for the near term.  Several examples of its Gas-as-a-Service business model were given.

This transaction gives Xebec a much longer runway, with 15-20 years of RNG, producing hydrogen via SMR (steam methane reforming) where desired.  That can now eventually transition to electrolysis, as Hygear has technology in both methods.  As a result, Xebec continues to seem ideally positioned to benefit from changing energy markets.  Shares are still halted, but I won't be surprised to see them track up to the $5.80 strike price tomorrow, even though I see that as overpriced.  Investors may take their own chances, just also recognize that this sort growth strategy can implode spectacularly.  However, I'd be more concerned about that if the business was in developing markets, rather than Europe and North America.  Though I don't view any place in the world as completely immune to financial trouble these days, I'm happy to see Xebec transition toward more and longer term European exposure of distributed RNG and hydrogen, as I view its agricultural and energy models as more sustainable than their current American counterparts.

Xebec shares have just been halted at the request of the company, pending news.

You can also pencil in tomorrow evening for some Brexit news.

While we wait on that, I thought I'd provide thoughts this morning's Edge announcement from Lumen.  Although the company describes the product as a "game changer", I doubt it will have any immediately measurable impact on sales or the stock.  Distributed hosting of video content often make sense, but this seems to be a truly edge-oriented product focused on latency.  The only real use case requiring low latency at the edge is control of IoT devices, particularly in combination with AI or data-intensive applications.  So, while it's good see Lumen being prepared for new business applications over the next few years, don't expect any immediate revenue from this.  Nokia has just started manufacturing the next-gen 5G equipment in India, which is the sort of infrastructure that would support such applications.  In the meantime, it's still core software wins for Nokia, though Softbank is a substantial customer.  For Lumen, I think this is just more evidence that the stock price is lower than management would like, and issuing a hot topic press release in response to yesterday's unwarranted volatility.

Finally, I suppose it's worth documenting that AES has hiked its dividend by 5%, with January 28th as the next ex-date.  The lack of a corresponding move in AES shares is as good a sign as any to me that shares were already somewhat overbought.

Topics:

• none