KeyStone’s Stock Talk Podcast Episode 137
This week we are start by introducing our new Webinar series. Our Dog of the Week is Xebec Adsorption (XBC: TSX), a market darling in 2020 and to start 2021, which saw it share price cut drop over 60% from its highs after reporting a revenue shortfall. Xebec is a provider of clean energy solutions for renewable and low carbon gases used in energy, mobility and industry applications. The company specializes in deploying a portfolio of proprietary technologies for the distributed production of hydrogen, renewable natural gas, oxygen and nitrogen. Is the drop an opportunity or a sign of things to come?
In our ask us anything, we talk about a recent survey of 1,984 adults conducted by Bloomberg, found that 1 in 10 Americans are unfamiliar with cryptocurrencies. With nearly half of the respondent’s saying that they had only heard of some of the coins, such as Bitcoin and Ethereum. And 61% of those who had heard of crypto admitted that they had no idea how it actually worked.
In our Your Stock Our Take Segment, we answer a listener question on Mene Inc. (MENE:TSX-V), a Canadian Small-Cap with strong revenue growth. Mene designs, manufactures, and markets gold and platinum jewelry. Customers buy jewelry, monitor the value of their collection, and sell or exchange their pieces by gram weight at prevailing market prices.
Simple Advice to Position your Portfolio for the Next Decade
KeyStones’ Simple Portfolio Building Plan – designed to enrich you, not your advisor. We show investors how to save on fees, and focus on buying great businesses (stocks) designed to grow and pay dividends over the long-term.
Spring 2021 Special Topics:
- KeyStone’s Market Outlook: Are the markets cheap or expensive today? Get our take on both the bull and bear case of the market and how you should position your portfolio.
- Why 2-3 Great Investment Ideas can Change your Life: Real examples from our research in how $20,000 invested in Boyd Group (BYD:TSX) became over $2 million in 12 years & $20,000 invested in XPEL (XPEL:NASDAQ) became $697,000 in just 3 years. Find out how we uncover these great growth stocks and what to look for in a capital compounding investment such as Boyd and XPEL.
- Hot Topics:
- Bitcoin – What it is and is it right for your portfolio?
- Cannabis – Strength in the U.S. continues, are there now opportunities in Canada? Get our top Cannabis picks.
- WallStreetBets – The good, bad and the ugly.
- Renewables & Cleantech – Geothermal, Solar, Hydro, Wind & Nuclear Power – which are right for your portfolio?
- Telehealth & Healthtech – The shift to online and in-home healthcare and where the opportunities may occur.
- Are Gold Stocks right for your portfolio?
- DIY Starter Portfolio: full details & analysis on 4-6 great stocks you can buy today. Our crisis investing portfolio from KeyStone’s April 2020 DIY Webinar has already gained 70.39%. Do not miss out on these unique, profitable growth and dividend growth stocks.
- Live 45-minute Q&A Session: Following the Webinar with Ryan Irvine & Aaron Dunn – answering your questions on the Webinar, stock investment strategies and giving ratings on any stock in Canada or the U.S.
Crypto-What? Poll Finds 1 In 10 Americans Unfamiliar With Cryptocurrencies
1 in 10 Americans are unfamiliar with Crypto
A recent survey of 1,984 adults conducted by Bloomberg, found that 1 in 10 Americans are unfamiliar with cryptocurrencies. With nearly half of the respondent’s saying that they had only heard of some of the coins, such as Bitcoin and Ethereum. And 61% of those who had heard of crypto admitted that they had no idea how it actually worked.
Now I too can admit that I didn’t understand cryptocurrencies and blockchain until very recent when I had a phone call with one of our clients who was also bringing some great questions to the table that I was unsure of myself. Like where do crypto miners actually “mine” the crypto and how does an investor gain exposure or create a crypto wallet.
With so many market participants questioning whether they should add crypto to their portfolio, I thought it would be wise to teach our upcoming webinar attendees how bitcoin works, and whether we think it’s right for your portfolio.
Now don’t get me wrong, this upcoming webinar is not specifically about cryptocurrencies, but it is a great piece of information that I believe would be valuable to many who have their eye on the asset class.
Your Stock Our Take
Tyler via email – I’ve been following them since they IPO’d and I’ve been in and out of the stock for some nice gains over the past couple years, but they’ve recently announced their debt retirement by getting their first institutional investor. Their revenues have increased in multiples YoY and I believe last quarter was their first profitable quarter. Let me know your thoughts.
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Mene Inc. (MENE:TSX-V)
Current Price: $0.58
Market Cap: $141 Million
What does the company do?
Mene Inc. crafts pure 24 karat gold and platinum jewelry that is sold by gram weight through mene.com, customers may buy jewelry, monitor the value of their collection, and sell or exchange their pieces by gram weight at prevailing market prices. Mene generates revenue when jewelry is sold directly from the company’s website, and receives a premium of approximately 20% to 40% of the daily precious metal value.
Recent News
- On March 12, Mene entered into a debt retirement agreement with a private institutional investor where the company will issue 9.9 million common shares at $0.50 per share, generating $5 million, and will additionally make a cash payment of $5.1 million to pay off its debt.
- After the debt retirement Management announced that the company is now well positioned to deliver sustainable growth to shareholders into 2021 and 2022 without the need to raise additional equity or debt capital. (only sort of guidance I could find).
Recent Financial Results (Q3, 2020)
- Now revenue is pretty lumpy, but Mene generated $5.4 million in revenue in the quarter, an increase of 69% from Q3, 2019.
- Adjusted Earnings were a gain of $271K up from a loss of $(442K) in the same period last year.
- After the debt retirement agreement, I estimate that Mene will have net cash and equivalents of approximately $3 million. So the balance sheet is healthy.
- The company has a trailing P/S multiple of 7.6 times sales, which is getting pricey in my opinion.
Conclusion:
First off, I think that it is an interesting business idea of having Mene’s “collection” of jewelry fluctuate with the spot price of the precious metal, but still securing a premium over the current value of gold. Looking at the company’s sales, there is some lumpiness, but the Y-o-Y growth has been impressive. One thing that I would say is that of course, since the business is just tapping into profitability, it does not fully meet our investment criteria. But it will be interesting to see if the company can string together several quarters of profitability and essentially prove its business model. But right now, with it trading at a relatively pricey P/S multiple, and just tapping into profitability, it’s not one that is a “screaming buy” in my book. But its certainly a business to continue to follow.
Weekly Dog
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Xebec Adsorption (XBC: TSX)
Current Price: $4.75
Market Cap: $675 million
What does the company do?
Xebec is a global provider of clean energy solutions for renewable and low carbon gases used in energy, mobility and industry applications. The company specializes in deploying a portfolio of proprietary technologies for the distributed production of hydrogen, renewable natural gas, oxygen and nitrogen.
Key Points:
Xebec’s stock is down 45% over the last 3 trading days after the company revised its 2020 guidance and no longer expects to achieve its full year guidance of $70 to $80 million for 2020. The stock price is down over 60% since hitting its all time high of $11.20 on January 18th.
Xebec was a major, clean-tech success story over the last 2 years. In 2020, the company saw its stock price soar nearly 300%.
We actually liked the business and had a face-to-face meeting with the CEO when we attended the LD Micro conference in December of 2019. At the time, revenue had doubled relative to the previous year, and while Xebec was not yet profitable, the company was able to lay out a very plausible plan for continued revenue growth and a transition into profitability.
Unfortunately, this never happened. The company initially set its revenue guidance for 2020 at $80 to $90 million which would have implied growth of 60% to 80%. Revenue guidance was then reduced to $70 to $80 million for 2020 after the release of the Q3 report in November. The most recent update last Friday adjusted the guidance down to $57 million for the year which implies no growth over 2019. The new guidance implies $7 million in revenue for Q4 2020 which would be a year-over-year decline of nearly 50% and a quarter over quarter decline of 42%.
Conclusion:
With the stock down over 60% from its highs, does that make Xebec a buy for investors looking to get into the cleantech space? My answer to this question is no.
There are 3 major issues I see here.
First, is that the company is not making money, meaning net profit and cash flow and we have no sense of when this is going to change. At KeyStone, profitability from current operations is our minimum criteria for investment. We maintain these criteria for good reasons, one of the most important is that a company without profitability has not yet validated its business model. There are enough profitable, growth-oriented businesses out there to invest in that we don’t see a need to speculate on companies that aren’t making money.
Second is that we have a big problem with companies that miss their guidance by such a wide margin. We understand missing guidance that was provided pre-covid. We certainly give most companies a pass on that. But just in November, the company implied that it was expecting $20 to $30 million in revenue for the quarter and now months later they drop that to $7 million. They were already half way through Q4 in November so a revision of this magnitude is really unacceptable and has us questioning management’s credibility.
Third is that even with the 60% decline from its highs, Xebec still doesn’t look that cheap. We felt that the company was grossly overvalued and trading on pure speculation when it was close to its highs. We can’t value the company on earnings and cash flow because it has none. The company still has a total market value today of about $675 million. The price to sales is about 12 times. There is no way for us to determine when the company will actually start making money (earnings and cash flow) and we believe that management has lost credibility by missing guidance so massively.
During this period the company completed a financing in the range of $150 million with that guidance out there. It is not a good look.We have been asked about XBC many times over the past year – a client asked us several times at the start of this year – if they should buy it at $10 and $11 – their broker had been constantly recommending it to them in that range.
We like the business and the potential, but it was very expensive so we said not to buy.
There is a history of overpromising an underdelivering.
DATE: May 28th, 2019.
Current Market and Guidance for 2019
Our outlook for renewable natural gas and hydrogen purification remains unchanged from our previous guidance. We expect our Service segment, which includes Industrial Air & Gas, to continue its revenue growth in line with our acquisition strategy.
Overall, we anticipate significant revenue growth in 2019 from both our European and Chinese subsidiaries, as well as our North American business. Our guidance is based on current order backlog plus anticipated future orders throughout the year.
We maintain our guidance of CDN$ 45.0 million+ and earnings per share (EPS) in the range of $0.10 to $0.13 for 2019.
Execution and organizational development will be key to continuing growth. Management recognizes this and is fully focused on operational performance and the creation of an environment that will allow the company to scale. We are working on expanding our managerial capabilities, building strong, results-driven teams that will deliver on the opportunities facing us.
Less than three months later.
DATE: August 13, 2019
Xebec has been providing guidance for 2019 with revenues of $45 million plus, net earnings in the $4 to $5 million and EBITDA in the $6 to $7 million range. We are currently on track to meet these numbers. Nonetheless, we are adjusting our EPS range to between 0.07 and 0.10 cents due to the higher outstanding share count from our July 2019 equity raise (units), some warrant conversions of the November 2018 equity raise (units), and the likely exercise of the 2017 convertible debentures in November this year.
Becoming a pattern from this management team.
