In a Feb. 22 research note, analyst Devin Schilling reported that PI Financial initiated coverage on UGE International Ltd. (UGE:TSX.V; UGEIF:OTCQB) with a Buy rating and a CA$5.25 per share 12-month price target. UGE's share price is currently trading around CA$2.18.
Calling UGE a "solar developer set to eclipse the competition," Schilling wrote, "With a turnaround largely complete and a strategic shift entering into the owner/operator business model behind them, we believe UGE is well positioned to benefit from the rapidly growing solar market." The company specializes in commercial and community solar energy projects.
The analyst presented the main reasons PI Financial is bullish on the UGE investment opportunity.
First, the U.S.' solar industry is "growing at a rapid pace" due to favorable government policies and related tax incentives, decreasing costs (they are now 70% lower than in 2010) and rising demand for clean electricity, Schilling highlighted. In the last decade, the industry grew an average of 49% each year.
Two, the U.S. community solar market is also expected to grow, Schilling wrote, by about 130% over the next five years.
"With governments around the globe implementing stronger environmental policies designed to fight climate change in addition to corporations and individuals facing pressure to meet sustainability targets, we believe UGE is well positioned to benefit from continued expansion of the solar industry over the foreseeable future," Schilling commented.
Three, UGE shifted its business model from working for other solar operators to building, owning and running its own solar projects, Schilling pointed out, which affords it further upside. The owning and operating elements should provide UGE with a steady, recurring revenue stream and generate much higher margins.
"A growing recurring revenue stream could result in a rerating for UGE and provides additional upside to our target price," Schilling noted.
Four, UGE's expanding project backlog, last valued at US$112 million on Sept. 30, 2020, forecasts future revenue, in two forms. About US$12.7 million of upfront revenue is anticipated as the company installs projects over the next two years, and roughly US$10.7 million of annual recurring revenue is forecast over the 20-plus-year life of UGE's projects.
Schilling also noted that UGE is currently trading at an unwarranted discount to its peers but expects the gap to shrink, in part, as more and more investors learn about the company.
"We anticipate the pace of contract announcements will further ramp up with the Biden Administration having announced plans to adopt a strong clean energy and climate agenda which calls for US$2 trillion in spending over the four-year term," Schilling added.
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1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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Disclosures from PI Financial, UGE International, Initiating Coverage, February 22, 2021
I, Devin Schilling, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly related to the specific recommendations or views expressed in this report. I am the research analyst primarily responsible for preparing this report.
Research Disclosures for UGE Interational:
1) PI Financial Corp. and its affiliatesí holdings in the subject companyís securities, in aggregate exceeds 1% of each companyís issued and outstanding securities. No
2) The analyst(s) responsible for the report or recommendation on the subject company, a member of the research analystís household, and associate of the research analyst, or any individual directly involved in the preparation of this report, have a financial interest in, or exercises investment discretion or control over, securities issued by the following companies. No
3) PI Financial Corp. and/or its affiliates have received compensation for investment banking services for the subject company over the preceding 12-month period. Yes
4) PI Financial Corp. and/or its affiliates expect to receive or intend to seek compensation for investment banking services from the subject company. Yes
5) PI Financial Corp. and/or its affiliates have managed or co-managed a public offering of securities for the subject company in the past 12 months. No
6) The following director(s), officer(s) or employee(s) of PI Financial Corp. is a director of the subject company in which PI provides research coverage. No
7) A member of the research analystís household serves as an officer, director or advisory board member of the subject company. No
8) PI Financial Corp. and/or its affiliates make a market in the securities of the subject company. No
9) Company has partially funded previous analyst visits to its projects. No
10) Additional disclosure: No
Analysts are compensated through a combined base salary and bonus payout system. The bonus payout is amongst other factors determined by revenue generated directly or indirectly from various departments including Investment Banking. Evaluation is largely on an activity-based system that includes some of the following criteria: reports generated, timeliness, performance of recommendations, knowledge of industry, quality of research and investment guidance, and client feedback. Analysts are not directly compensated for specific Investment Banking transactions.