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Xebec 4Q21 results and accelerated CEO transition +3

The House has almost unanimously voted to suspend normal trade relations with Russia.  I think this marks the crux of the Ukraine war from an investment standpoint.  Either Putin begins to fold his military offensive or we start to see the collateral damage in equity markets.  Thus, I will be watching events on the ground as closely as possible next week. When I brought this up last week, I noted the possibility that Putin and Xi are gaming western markets and that could still be the case, despite negotiation news.  That and my cyclone interpretation of the American response argue for continued carnage, but hopefully I am wrong, both for the world and markets.  Note that my gas picks would be exempt from fading recent gains, with American supply touching $5, and oil back around $105.  Even so, I am leaning toward not attending Xebec's Denver event in person.  XEBEF could easily rise back above $2 with a 26% rebate rate, or fall back toward lows.  I favor the former, but think it is undervalued for the long term either way, and that the movement over the first half of this year will have little to do with the company's business fundamentals.

On 3/17/22 09:58, Esekla wrote:
The Xebec conference call has concluded.  Supply chain issues are expected to extend into the beginning of 2023, but long-lead items have been pre-purchased.  The corporate team transition is also complete.  So, SG&A expense should decrease as a percentage of revenue going forward, with management confirming YoY growth in revenue, and margin.  This offer hope on the stock price throughout this year, with first quarter historically low, more so this year, but pickup throughout the year

Many questions in the call indicated gross misunderstanding of the various stages of company-specific and macro-economic development for various segments.  For instance, hydrogen for transportation is still not profitable, and although Xebec is creating new carbon capture platforms and has another purchase order from CarbonQuest, management estimates that this segment should take 30 years to develop.

Thus, I maintain my view that it's all about Biostream for now.  Management referenced 65 proposals YtD vs 32 over the same period last year, but revenue for products delivered in 2H22 will be recognized in 2023.  There was also a confusing comment about UEC production in the back end of this year, on which I will follow up, before deciding on my trip to Denver.

That said, industrial gases look like another area for immediate growth.  With the pandemic receding, emphasis is gradually shifting from oxygen back towards nitrogen, and new applications are being targeted.  This is reflected in recent customer inquiries such as the sustainable and cost-optimised production of nitrogen for soldering electronic components.  Xebec is working to doubling its capacity in Germany, and I think this dovetails with Intel's plans and other semiconductor growth across Europe.  I think the war in Ukraine has a the potential to supercharge this initiative as it and Russia have historically been major sources of noble gases, such as neon and helium, used in the industry.

In conclusion, Xebec's business seems unlikely to achieve truly breakout results on its own in the next quarter or two, but this quarter already represents a vast improvement in operations, and that should build as the year progresses.  Furthermore financial partnerships are being targeted, and I think the possibility of acquisition by a larger energy company keeps building.  XEBEF is up over 12% in the early going, to trade above $1.50, and I am happy to have built my positions on recent lows.  However, very near term stock prices remain uncertain, to say the least.  Standard GRoDT caution and patience continues to make sense, even though I think shares remain grossly under-priced for the long term.

On 3/17/22 08:32, Esekla wrote:
Xebec has announced its fourth quarter results:
  • 2 Canadian cents of EPS is in line
  • from CAD45.9M of revenue, which beats by CAD2.2M
No quantified guidance for this quarter was given, and the company continues to grapple with inflation, supply chain and labor difficulties.  However, it reiterates macro tailwinds from the infrastructure act in the U.S. including $9.5b for clean hydrogen hubs, $2.5b for refueling infrastructure and $3.5b for carbon capture projects.  To that it added the REPowerEU initiative announced on March 8th, which should result in a legislative proposal by April.  It also cites 34% and 24% YoY industry growth in RNG facilities and production, and says it is producing at both American facilities, though it has not yet recognized revenue from them. 

The company also announced that its new CEO will take over immediately rather than in two months, in recognition of the progress.  This seems symbolic, but appropriate to me.  The conference call is beginning.  More after that.