UGE International has 117% upside, Haywood says

Solar player UGE International (TSXV:UGE) is not without risk, but Haywood Securities analyst Pardeep Sangha thinks the stock also has big upside.

In a research report to clients today, Sangha initiated coverage of UGE with a “Buy” rating and one-year price target of $1.00, implying a return of 117.4 per cent at the time of publication.

Sangha says he thinks UGE, a mid-scale turnkey developer of solar power projects for industrial and commercial customers, is at a revenue inflection point. He notes that its most recent quarterly revenue of $6.3-million surpassed its entire fiscal 2016 topline. Noting that the company achieved positive EBITDA for the first time in Q2, the analyst thinks the company will be EBITDA positive for all of fiscal 2018 and will experience huge revenue growth.

“We are forecasting 280% revenue growth In CY17, followed by 71% growth In CY18,” Sangha says. “Our revenue forecast is based on UGE executing and implementing on projects that are already in its backlog. We assumed the Peterborough contract will start contributing in Q4CY17. Our CY17 forecast is for revenue of $22.1M with Adj. EBITDA loss of $1.5M. In Ontario, UGE is expecting to continue to benefit from the Feed-in Tariff program, meanwhile activity in the Northeast U.S. is starting to gain momentum as the Company builds a base of referencable customers. For CY18, our forecast is for revenue of $37.7M with positive Adjsuted EBITDA of $1.2M. UGE’s long-term growth strategy is based on geographic expansion coupled with strategic acquisitions.

Sangha notes that UGE has successfully augmented its organic growth with acquisitions. He points to the acquisition of Carmanah Technologies Corporation’s on-grid solar business in April 2017, which added (U.S.) $10-million in annual revenue, and says its acquisition of Endura strengthened its Canadian market position.

The analyst says UGE has a clear and growing market opportunity.

“Solar costs have declined over the past five years, leading to distributed solar becoming the fastest growing source of energy,” Sangha argues. “The commercial solar market is underserved and highly fragmented, providing UGE with numerous opportunities for growth and for consolidation.”