KeyStone’s Stock Talk Podcast Episode 128

We start with a unique segment inspired by a listener. The Case For Debate: We highlight two growth companies from the green/renewable segment to debate. Xebec Adsorption Inc. (XBC:TSX-V) and Greenlane Renewables Inc. (GRN:TSX-V). This week, our YSOT segment is on CargoJet (CJT:TSX), a provider of time sensitive domestic network air cargo services.  CargoJet’s has faced an almost perfect storm for its business in 2020 and shares have doubled once again. The stock has been a tremendous long-term performer and we look into its current valuations. 

The Case for Debate: This week we turn to the green/renewable segment to debate two emerging growth stocks. Xebec Adsorption Inc. (XBC:TSX-V) and Greenlane Renewables Inc. (GRN:TSX-V).

Brennan will be the judge, jury and executioner for the first time – so no pressure!

Xebec is a global provider of gas generation, purification, and filtration solutions for the industrial, energy and renewables marketplace. Greenlane is a global provider of biogas upgrading systems – the company’s solutions create clean, low-carbon renewable natural gas (RNG), suitable for injection into the natural gas grid and for direct use as vehicle fuel. Greenlane is cleaning up two of the largest and most difficult-to-decarbonize sectors of the global energy system: the natural gas grid and the transportation sector.

Xebec Adsorption (XBC:TSX-V)

Current Price: $7.60

Market Cap: $708.53 Million

  1. Xebec is a cleantech, renewable energy company that helps its clients reduce their carbon footprint. 
  2. Xebec is a growth stock with strong top line fundamentals. Revenues grew 39% in Q3 and 41% for the first 9 months of the year, and 145% last year in 2019. 
  3. A ton of investment and interest continue to pour into the cleantech / renewables space. Xebec’s order backlog has grown 25% over the last year and the company reports nearly $1.2 billion in its current quote backlog providing potential for explosive growth. 4 acquisitions have also been announced since July.
  4. The company does have some history of profitability. Xebec will report a net loss in 2020, due to short-term investments into growth and Covid-19 factors. However, Management expects to continue its rapid growth and return to profitability in 2021. 
  5. Xebec received a conditional approval for an up listing to the TSX, exposing it to an entirely new market of investors, new analyst coverage and likely addition to the TSX cleantech index. 
  6. The company trades at a valuation of 12 times revenues; not cheap but not too bad considering the growth. 

Greenlane Renewables Inc. (GRN:TSX-V)

Current Price: $1.36

Market Cap: $132 million

Greenlane is cleaning up two of the largest and most difficult-to-decarbonize sectors of the global energy system: the natural gas grid and the transportation sector. As a leading global provider of biogas upgrading systems, Greenlane’s solutions create clean, low-carbon renewable natural gas (RNG), suitable for injection into the natural gas grid and for direct use as vehicle fuel. Our systems, marketed and sold under the Greenlane Biogas™ brand, remove impurities and separate carbon dioxide from biomethane in the raw biogas created from organic waste at landfills, wastewater treatment plants, farms and food waste facilities. With multiple core technologies, more than 110 systems deployed in 18 countries and counting, and 30+ years’ experience, Greenlane finds the right solution, whatever the specific project requirements.

  1. Strong Revenue Growth: Q3 revenues rose 30% in a pandemic to $6.5 million.
  2. On the Verge of Profitability: Q3 Adjusted EBITDA loss of just under $200K compared to $860K in Q3 2019 – strong improvement. 
  3. Huge Order Backlog Increase: 350% backlog increase to $43.8 million. And sales pipeline, valued at over $690 million.
  4. Significant insider buying in 2020 with no insider selling. Xebec on the other hand has had significant insider selling including from its CEO, up ot$2.3 million and virtually no insider buying. 
  5. Growth outlook near-term for Greenlane versus slower growth for Xebec.
  6. Finally, on a valuation basis, Greenlane trades at a 6.5 times revenue or roughly half the 12 times valuation Xebec trades at – more growth and half the price – there is no doubt which is the better option.

Your Stock Our Take

Lorne via Email 


CargoJet (CJT:TSX)

Current Price: $215.41

Market Cap: $3.4 Billion

Yield: ~0.4%

What does the company do?

CargoJet is Canada’s leading provider of time sensitive domestic network air cargo services. CargoJet owns a fleet of 27 aircraft and its main air cargo business is comprised of:

  • Operating domestic air cargo between 15 major Canadian cities.
  • Providing dedicated aircraft to customers on an Aircraft, Crew, Maintenance and Insurance basis. (ACMI)
  • Operating scheduled international routes between the USA and Bermuda, Canada and Germany, and between Canada and Mexico. 

Key Points: 

Amazon does utilize Cargojet’s overnight air network and charter aircraft services to move packages. And in August of 2019 CargoJet announced a strategic agreement with Amazon – where Cargojet will issue warrants to Amazon to purchase variable voting shares that will vest based on the achievement of commercial milestones related to Amazon’s business with Cargojet. So essentially, Amazon is looking to take an equity stake in CargoJet.  

CargoJet’s stock has performed very well over the past decade and has recently benefited from the COVID-19 pandemic because of increased online shopping, and reduction of passenger aircraft operating in international routes leading to strong demand for CargoJet’s services. 

Recent Financial Results: (Q3, 2020)

  • Revenue has been growing at a great pace. Increasing 39% in the last 9 months, compared to the same 9-month period in 2019. And that’s compared to pre-COVID growth of approximately 7% year-over-year. 
  • TTM Adjusted EBITDA was $256 million, an increase of 72% from the same twelve trailing month period last year.   
  • Currently the company is trading with a trailing EV/EBITDA multiple of ~15x. Which I would say is attractive if this level of revenue & EBITDA growth can persist post COVID-19.

And to help us decide whether strong growth will continue into the future, we can look at a few comments made by management:

  • e-commerce growth continues to accelerate, due to many businesses moving sales online.
  • Reduced global air cargo capacity, as a result of extremely reduced passenger flights led to strong growth in its ACMI segment that the company believes will continue in the short to medium term. 


I like that CargoJet is a dominant player in the Canadian airline-cargo space, and the company is positioned to benefit from increased online shopping, which I believe will continue to see solid growth into the future. The company’s partnership with Amazon is also something that I think is great for the company’s growth prospects, as Amazon is showing interest in becoming a shareholder of CargoJet. 

Now of course the big question here is whether growth in revenue & EBITDA can continue or will both figures slip somewhere between Pandemic & Pre-Pandemic levels. Given that the company recently put up 39% in revenue growth compared to 7% for the same period between 2018 & 2019 – I would expect the growth rate to taper back to near pre-pandemic levels in the long run. 

So, are we paying a decent price for CargoJet’s stock in relation to its growth rate and EV/EBITDA multiple of 15x? I would say that the nice thing here is that CargoJet’s stock does not appear to be priced to perfection and could offer growth at a reasonable price. That is to say, that CargoJet is not trading at an extremely high valuation, and if growth does indeed taper off, the stock may not plummet as if it were trading at 25x EV/EBITDA or higher. Now this is not a stock that we recommend to KeyStone clients, but I think it is a great company with a bright future that is trading at a reasonable multiple, and personally a stock that I wouldn’t be afraid to hold in my own portfolio. 

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