UGE International won’t be harmed by American solar tariffs, Haywood says

A 30 per cent tariff on U.S. imports of solar panels isn’t the best news, but it will not have a huge impact on UGE International’s (UGE International Stock Quote, Chart, News: TSXV:UGE) ability to grow,” says Haywood analyst Pardeep Sangha.

The United States this week announced a new plan that will see 30 per cent tariffs placed on solar panels and products from outside the US is said to be aimed at cutting off imports from manufacturing behemoth, China. The new tariff was approved in response to findings by the US International Trade Commission (ITC) which concluded that domestic manufacturers were being negatively impacted by cheap imports, triggering a 30 per cent duty on imported solar cells and modules in the first year, followed by decreasing tariffs over ensuing years.

Sangha says UGE expected the worst, so this development is actually a welcome one, if not what one would call good news.

“Management is relieved,” the analyst says. “UGE’s management is not happy with the tariffs, but very pleased that the 30% tariff is lower than its previous expectation of 45%. Management believes the uncertainty surrounding the tariffs caused some project decisions to be delayed, but clarity from yesterday’s announcement will help relieve those bottlenecks.”

The analyst says he thinks it will be full speed ahead, more or less, for UGE’s business.

“We are expecting minimal impact to UGE’s business,” he says. “Approximately 80% of UGE’s revenue over the past twelve months has been generated in Canada versus only 16% in the United States and the rest from international markets. In anticipation of these tariffs, UGE was already quoting and winning higher priced contracts in the U.S. The Company’s backlog of $38.3M at the end of Q3CY17 gives revenue certainty into CY18. We believe the costs of solar panels will continue to decline in the long run. We expect demand to only temporarily slow down in the U.S. market as global demand and technological innovation will continue to bring down the cost of solar panels.”

In a research update to clients today, Sangha maintained his “Buy” rating and one-year price target of $1.00 on UGE International, implying a return of 177.8 per cent at the time of publication.

Sangha thinks UGE will generate Adjusted EBITDA of negative $1.0-million on revenue of $22.1-million in fiscal 2017. He expects those numbers will improve to EBITDA of positive $1.2-million on a topline of $34.0-million the following year.