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Tons of upside to UGE International, says iA Capital

Quarterly results came in lower than expected from solar company UGE International (UGE International Stock Quote, Chart, News, Analysts TSXV:UGE), but Naji Baydoun of iA Capital Markets is keeping the faith, maintaining a “Speculative Buy” rating and target price of C$3.25/share for an implied return of 238.5 per cent in an update to clients on Friday.

Founded in 2008 and headquartered in New York City, UGE International provides commercial and community solar energy solutions to commercial and industrial clients in Canada, the United States and the Philippines. The company develops, builds, owns, operates, deploys and finances solar projects as well as offering engineering and consulting services.

Baydoun’s analysis comes after the company released its first quarter financial statements for the 2022 fiscal year.

“Results missed expectations primarily due to lower-than-forecast EPC activity in the quarter (due to UGE’s strategic move away from this business line towards more recurring revenue streams),” Baydoun said. “Meanwhile, energy generation revenues were in line with expectations, but remain minimal as no new solar projects were commissioned during the quarter.”

The company’s financial quarter was headlined by revenue of $0.4 million for a 14 per cent year-over-year decrease, which was a significant miss in relation to the $0.7 million projection set out by iA Capital Markets, and even further from the $1 million projection set out by the consensus. (All figures in US dollars except where noted otherwise.)

The bulk of the miss came from the company’s EPC and consulting revenue stream, which came in at $0.32 million to barely account for half of the iA projection of $0.63 million.

Meanwhile, UGE International reported an adjusted EBITDA loss of $1.3 million, which also missed the mark in relation to the iA projection of a $0.9 million loss, as well as the consensus forecast of a $1 million loss.

Baydoun also made note of delays the company has experienced in relation to commissioning its next set of three solar projects in the United States, which would stand to double UGE’s operating portfolio once brought into service.

However, help is on the way for UGE, as Baydoun noted that the company closed on a previously announced C$3 million green bond offering in April, therefore securing additional project development capital; company management also indicated additional interest from investors for this type of financing product, with Baydoun noting he would not be surprised to see UGE execute additional green bond offerings.

“Interest in community solar remains strong as evidenced by our increasing project backlog and pipeline,” said Nick Blitterswyk, CEO of UGE International in the company’s May 25 press release. “So far in 2022, we have made great strides in refining our team and processes as we continue to scale the Company. Although we are navigating shorter-term industry constraints, we remain confident in achieving our 2024 goal of surpassing 100MW of operating assets. Until then, we look forward to continued growth throughout the year.”

Furthermore, Baydoun expects the company’s development pipeline spanning over 1GW to drive long-term project development and deployment activities, buoyed by its present short-term backlog of 173MW.

“The continued growth in both the backlog and overall broader pipeline should provide the Company with more options from which it can drive shareholder value over time via a larger and more broadly diversified portfolio,” Baydoun said.

With first quarter financial results now accounted for, Baydoun slightly increased his 2022 revenue projection from $2.9 million to an even $3 million for a potential year-over-year increase of 11.1 per cent. Looking ahead to 2023, Baydoun forecasts $5.3 million in revenue (previously $4.9 million) for a potential year-over-year increase of 76.7 per cent, with the year notably seeing Baydoun forecast the company’s energy generation revenue stream account for more than 50 per cent of the overall mix, setting the stage for projected CAGR of 117.1 per cent through 2026, which Baydoun forecasts at $11.1 million in revenue.

Meanwhile, Baydoun lowered his EBITDA projection from a $3.5 million loss to a $4 million loss in 2022, then shifted his 2023 projection from a $1.8 million loss to a $1.9 million loss. However, Baydoun forecasts a positive turn of $1.6 million for 2024, which is when he also introduces an EV/EBITDA multiple forecast of 31.9x.

“UGE offers investors improving growth and cash flow fundamentals (driven by its strategic pivot towards contracted project development), exposure to the high-growth community solar market in the US (approximately 20 to 30 per cent+ CAGR through 2030), attractive risk-adjusted project returns (double-digit equity IRRs), and a discounted valuation compared with peers,” Baydoun said.

UGE International has seen its share price drop off by 44.9 per cent over the course of 2022, hitting an early peak of $1.79/share on January 13 before gradually declining, falling as low as $0.72/share on May 12.

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About The Author /

Geordie Carragher is a staff writer for Cantech Letter
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