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Xebec cuts FY20 guidance and thoughts on Asia -3

10:30 15-Mar-21

Xebec has followed up with an MoU with Corgas, the largest Australian-owned industrial, medical and specialty gas company.  Expanding to the new RNG markets of Australia and New Zealand has long-term significance, but this mostly seems like another opportunity to push the hydrogen buzzword again.

That said, XEBEF fell 30% on last week's news, whereas EBIX continues to climb.  Xebec is certainly a more speculative opportunity, but price matters, and if the company can get operations in order and start showing results, it offers potentially greater long-term returns as compared to the continued short to medium term upside in EBIX.

Xebec has cut its FY20 revenue guidance from $75+/-5M to about $57M.  This is primarily due to cost overruns on some RNG projects and the cancellation of two systems for which revenue had already been partially booked.  Management says that its BGX containerized biogas units will lead to more predictable revenue going forward.

This validates my concerns, and now we know why the COO resigned.  XEBEF traded down 13% in the pre-market, but the wide bid-ask spread doesn't indicate clear direction from there.  A larger drop is certainly possible and it may be that the market simply isn't paying attention.  Thus, this development adjusts my intention to cautiously accumulate only below $5.80 more toward the $5 level in advance of the March 25th earnings date.  Long-term though, this is hardly a deal-breaker for Xebec given the positioning discussed yesterday.  Natural gas at $2.66 doesn't help either.

Instead, EBIX will get my preference on what looks to be a down market day.  India's fuel prices are boosting inflation.  This is vaguely good for EbixCash, and more overtly so for Shell, not that I would buy the latter. Tesla is moving forward on production plans there.  The country is key to the Biden administration's diplomatic response to China as well, and talks today could yield a big step forward whereby Modi relaxes his authoritarian posture and the U.S. considers the sadly novel idea that lives are more important than broken intellectual property ideas.  We'll see what happens, but the today may be an opportunity for those who missed the initial event.

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