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Xebec 4Q20 results -3

10:26 25-Mar-21


Xebec has announced its official fourth quarter results:
Analyst estimates had been gradually coming down from the #s I cited at the point of scheduling, but they were typically slow to adjust even after guidance was cut.  For those who want to use them to try to gauge entry points this morning, the EPS miss would be by 26 cents.  However, I find analyst estimates even more useless than usual here, and can't understand how they didn't predict the operational difficulties that I did.  For its part, management says that it has adjusted its quoting and management practices, and is working with external consultants to implement internal controls at the level required for non-venture issuers as part of its graduation to the main TSX exchange. 

I continue to think that this is outweighed by Xebec's positioning in renewable natural gas, and the introduction of the BGX Biostream containerized solution, which does not required customized engineering for sales.  Management says quotes for this solution have increased significantly over the recent months, with $439.6M being actively pursued, and the product now making up almost a quarter of total quotes.  It expects a similar percentage of revenue from the product this year, but continued impact from legacy products is expected through the first half.  The first BGX delivery has already taken place to a dairy farm with 5 more on the way.

Even so, I am not waiting to build positions in XEBEF below my $5 price point.  Shares are down another 10% to $3.30 in the early going, but my stance is to build positions to points that I can be patient with in case of acquisition by the likes of BP, Shell, or Chevron, whose interest is referenced in the press release.  If anything, Xebec expects to increase its stated pace acquisitions with 20-30 more by 2025.  That could make for more rough results, but I'm not sure the majors will wait for such developments, once American policy becomes clear.
 
In the meantime, management expects return to positive EBITDA this year, though possibly not until the second half.  Backlog grew only slightly to $100.1M as of March 18th, and service and support about 40-50% of revenue.  This might make for a slow market-driven recovery, but I still see that as a buying opportunity and am focused more on long-term industry positioning.