Solar stock UGE International is a double, says iA Capital

Solar power company UGE International (UGE International Stock Quote, Charts, News, Analysts, Financials TSXV:UGE) has had a nice run over the past half-year, with its share price just about doubling. But investors should expect something of a repeat over the next 12 months, according to iA Capital Markets analyst Naji Baydoun, who reviewed the company’s latest quarterly results in a Wednesday update to clients. Baydoun reiterated a “Speculative Buy” rating on the stock and C$3.00 target price, good for a projected one-year return at the time of publication of 102.7 per cent.

UGE International, which builds, owns and operates solar project in the United States, reported third quarter 2022 revenue of $1.8 million compared to $0.5 million a year earlier and adjusted EBITDA of negative $1.1 million compared to negative $1.0 million a year ago. (All figures in US dollars except where noted otherwise.)

The company, which just closed on a $7.4-million private placement, said it currently had 416 MW of projects in development as of the end of the quarter on September 30, with 412 MW in development currently with a backlog at the end of the Q3 at 233 MW.

“The third quarter of 2022 continued to build upon the revenue growth, energy generation, backlog and pipeline of prior quarters,” said CEO Nick Blitterswyk in a press release. “We’re pleased with the continued access to development capital that lenders have provided to the Company. In Q3 we closed our first revolving development capital facility to support our portfolio as it starts to meaningfully scale, and post quarter end we closed another Green Bond financing.”

On the Q3 top and bottom numbers, Baydoun said the $1.8 million in revenue was a beat of his forecast at $0.6 million as well as the consensus call at $0.7 million, while adjusted EBITDA at negative $1.1 million compared to both his and the Street’s estimate at negative $1.2 million.

“We continue to believe that near-term development and commissioning success should drive a higher share price as UGE’s installed asset base begins to meaningfully scale in 2023 (potentially closer to ~20MW of operating assets by end of 2023 versus ~2.8MW today),” Baydoun wrote.

Baydoun noted UGE’s recent acquisition of a 3.5 MW solar project in Oregon, its first in the state and one that could lead to other growth opportunities, while also saying that UGE continues to make good progress on its organic growth priorities by adding new projects to its near-term pipeline, placing into service a community solar project in New York and advancing a number of projects toward notice to proceed (NTP) stage.

“UGE offers investors (1) improving growth and cash flow fundamentals (driven by its strategic pivot towards contracted project development), (2) exposure to the high-growth community solar market in the US (~20-30 per cent+ CAGR through 2030), (3) attractive risk- adjusted project returns (double-digit equity IRRs), and (4) a discounted valuation compared with peers,” Baydoun wrote.