In its Oct. 31 research note, Haywood Securities initiated coverage on UGE International Ltd. (UGE:TSX.V; UGEIF:OTC) with a Buy recommendation and 12-month target price of CA$1, analyst Pardeep Sangha reported. UGE is "undervalued" and currently trading "below its peer group average," Sangha wrote. Shares of UGE are currently trading at around $0.52.
Sangha, who titled the report, "Strong Backlog Powering Rapid Growth," indicated UGE, "one of the leading solar solution providers to mid-scale commercial and industrial clients in Ontario and in the Northeast U.S.," is "at a revenue inflection point and "turning the corner to profitability." The $6.3 million that the company generated in Q2/17, the most recent quarter for which a figure is available, exceeded the amount it generated in all of 2016. Also during that quarter, UGE was EBITDA positive for the first time, an achievement that Sangha said he expects to continue into 2018.
A major revenue growth driver in upcoming quarters is UGE's projects in the pipeline, purported Sangha. The firm's reported backlog as of the end of Q2/17 was $47.9 million. One such job is a contract secured in June "for CA$20M to build 15 new solar systems for the City of Peterborough." Work on that, the company's largest contract to date, will begin later this year, thereby contributing to next year's growth.
As for the future for UGE, Haywood Securities is "forecasting 280% revenue growth in 2017 followed by 71% in 2018," according to Sangha. These percentages are based on the solar solutions company "executing and implementing on projects already in its backlog." Also about UGE's prospects, the analyst noted, "We believe UGE could reach over $100M in revenue, making it a favorable acquisition target for larger solar or clean energy companies."
Future growth, Sangha wrote, is also likely to come from acquisitions and geographic expansion, which have been and continue to be part of the growth strategy of this company. For example, it purchased Carmanah Technologies' on-grid solar business in April, and this "added $10 million in annual revenue." Its acquisition of Endura Energy in February "strengthened its Canadian market position."
Also favorable to this energy firm's growth potential is the increasing opportunity in the commercial solar market, Sangha noted, which is "underserved and highly fragmented, providing UGE with numerous opportunities for growth and for consolidation." Further, solar costs "have declined over the past five years," which is "causing demand to flourish."
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Disclosures from Haywood Securities, UGE International Ltd., Initiating Coverage, Oct. 31, 2017
Haywood Securities, or certain of its affiliated companies, may from time to time receive a portion of commissions or other fees derived from the trading or financings conducted by other affiliated companies in the covered security. Haywood analysts are salaried employees who may receive a performance bonus that may be derived, in part, from corporate finance income.
Haywood Securities, Inc., and Haywood Securities (USA) Inc. do have officers in common however, none of those common officers affect or control the ratings given a specific issuer or which issuer will be the subject of Research coverage. In addition, the firm does maintain and enforce written policies and procedures reasonably designed to prevent influence on the activities of affiliated analysts.
Analyst Certification: I, Pardeep S. Sangha, hereby certify that the views expressed in this report (which includes the rating assigned to the issuer’s shares as well as the analytical substance and tone of the report) accurately reflect my/our personal views about the subject securities and the issuer. No part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations.
Of the companies included in the report the following Important Disclosures apply: Haywood Securities Inc. or one of its subsidiaries has managed or co-managed or participated as selling group in a public offering of securities for UGE International Ltd (UGE-T) in the last 12 months. Other material conflict of interest of the research analyst of which the research analyst or Haywood Securities Inc. knows or has reason to know at the time of publication or at the time of public appearance: n/a