The report is available here: June 2018 Initiation Report.
We initiate coverage of UGE International Ltd. (TSXV: UGE, OTCQB: UGEIF, "UGE") with a price target of C$1.02 / $0.78. UGE is an emerging growth company in the alternative energy sector focused on providing renewable solar energy solutions for commercial customers. With headquarters in the US and operations in Canada and the Philippines, UGE is positioned to benefit from sales execution and a growing backlog of commercial contracts. UGE also stands to benefit from structural changes and technological innovation in the solar industry, which has dramatically lowered costs for businesses seeking to switch to distributed solar energy solutions. The company seeks to differentiate its business through offering comprehensive turnkey solutions that include design, engineering, procurement and construction with a goal of making it as seamless and cost-effective as possible for commercial customers to switch to renewable solar power. We see considerable value in shares, which trade with a market capitalization of just $10.7mn, just 0.4x 2018E revenues of $26.9mn and a fraction of the company's current $41.2mn backlog.
UGE targeting large opportunity in commercial solar
Unlike past business cycles, the solar energy sector appears poised for significant growth independent of subsidies, as industry participants benefit from dropping panel prices and an overall distributed solar cost that has passed grid parity, providing less expensive energy to clients. Indeed, according to Allied Market Research, the global market for solar energy is expected to grow from $86 billion in 2015 to reach $422 billion by 2022E. UGE appears well positioned to target this opportunity, with a turnkey solution for commercial customers that can enable them to save 20% - 40% versus utility energy prices with no upfront cash investment. The company estimates that less than 1% of the market for commercial solar power installations in its markets have been developed, with more than 6.4mn potential rooftops in the US and Canada alone offering a large market opportunity with a long tail.
UGE executing on sales growth, acquisitions
We see several potential catalysts ahead for UGE as the company gains scale and progresses towards its intermediate goal of reaching a $100mn revenue run rate with double-digit EBITDA margins. The company has already demonstrated significant growth over the last several years from sales execution and acquisitions - with revenues climbing by 260.5% from $5.8mn in 2016 to $20.9mn in 2017 following the company's acquisition of the assets from Carmanah Technologies Corp. 1Q18 growth was also impressive, with revenue up 10% YoY at $6.1mn. Looking ahead, UGE appears well on its way to double-digit sales growth again in 2018E and 2019E, as management reported a growing backlog of $41.2mn at the end of 1Q18.
Initiate coverage with a price target of C$1.02 / $0.78
We initiate coverage of UGE with a price target of C$1.02 / $0.78. We see UGE as an intriguing speculative growth company seeking to capture growth opportunities in the commercial solar market. Key upcoming events include the execution of the company's $41mn+ backlog, new business activities and potential acquisitions, as well as a goal of reaching adjusted EBITDA profitability by the end of 2018.
Please review important disclosures in the report and on our website at www.seethruequity.com.
About UGE International Ltd.
UGE delivers immediate savings to businesses through the low cost of solar energy. We help commercial and industrial clients become more competitive by providing distributed renewable energy solutions at no upfront cost, generating long-term economic and environmental returns. With over 360 MW of global experience, we work daily to power a more sustainable world. http://www.ugei.com.
Since its founding in 2011, SeeThruEquity has been committed to its core mission: providing impactful, high-quality research on underfollowed smallcap and microcap equities. SeeThruEquity has pioneered an innovative approach to deliver equity research of microcap and smallcap companies. SeeThruEquity has also been the host of acclaimed investor conferences that are the ultimate event for publicly traded companies with market capitalizations less than $1 billion since 2012.
SeeThruEquity is approved to contribute its research reports and estimates to Thomson One Analytics (First Call), the leading estimates platform on Wall Street, as well as Capital IQ and FactSet. SeeThruEquity maintains one of the industry's most extensive databases of opt-in institutional and high net worth investors. The firm is headquartered in Midtown Manhattan in New York City.
For more information visit www.seethruequity.com.