UGE has an upside of 130%, IA Capital says

After second quarter results he described as “soft”, Industrial Alliance analyst Naji Baydoun nonetheless remains optimistic about UGE International (UGE International Stock Quote, Chart, News, Analysts, Financials TSXV:UGE)

On August 24, UGE reported its Q2, 2023 results. The company posted Adjusted EBITDA of negative $2.6-million on revenue of $300,000, lower than the street’s expectation of $700,000.

“In Q2 2023, we focused on taking further strides towards our medium-term goal of 100 megawatts of operating assets,” CEO Nick Blitterswyk said. “We exceeded our backlog growth target for the second quarter and are nearly at our annual goal. More significantly, we now have 12.8 megawatts of projects that have moved into NTP this year, with the addition of 2.7 megawatts in the three months ended June 30, with more expected in the second half of the year. These projects are evidence of the company’s drive towards building and holding a portfolio of operational assets.”

Baydoun says despite the flat results, he sees many green shoots for UGE.

“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%+ CAGR through 2030), (3) attractive risk-adjusted project returns (double-digit equity IRRs), and (4) a discounted valuation compared with peers,” he argued. “Despite project delays and increased costs (which ultimately delay profitability timelines), we continue to see significant value in UGE’s backlog and pipeline, which could be unlocked over time via continued development success.”

In a research update to clients August 28, Baydoun maintained his “Speculative Buy” rating and one-year price target of $3.00 on UGE, implying a return of 130.8 per cent at the time of publication.

Baydoun thinks UGE will post Adjusted EBITDA of negative $9.9-million on revenue of $1.7-million in fiscal 2023. He expects those numbers will improve to Adjusted EBITDA of negative $8.0-million on a topline of $3.7-million the following year.