In a December 15 research note, H.C. Wainwright & Co. Equity Research
Analysts Sameer Joshi and Amit Dayal commented that community and
commercial solar power company UGE International Ltd. (UGE:TSX.V; UGEIF:OTCQB) is "positioned to capture value across the project lifecycle."
The analysts indicated that their positive outlook on UGE International is based upon several key factors including the firm's fast-growing sales backlog which as of November 2021, totaled 145MW and has exceeded management's previous goal of 120MW.
The company has repositioned itself away from its traditional business model that was built around project engineering, procurement and construction and has gravitated toward a higher-margin business model whereby the firm designs, constructs, owns and operates facilities throughout the entire project lifecycle.
UGE is now on a path to expand its installed capacity in the community solar segment from 3.4GW at the end of Q2/21 to 30.0GW by 2025.
The report from H.C. Wainwright & Co. noted that UGE is well-positioned to continue the increase in its backlog as the company will benefit from strong tailwinds from a highly conducive solar energy regulatory environment and declining solar installation costs.
The company's projects earn upfront fees and offer cash flows from future recurring revenues which serve to benefit all stakeholders. The firm's community solar projects typically utilize a property owner's unused areas such as rooftops, parking lots and empty lots. UGE's strategy is to earn fees during the project development and construction periods and then earn recurring revenues from energy sales over the course of a 15 to 25 year project contract.
As an example, the H.C. Wainwright report listed that "a typical 1MW rooftop project in NYC yields the company a $0.46/W in upfront development, construction and EPC fees, as well as $0.35/W in present value of future cash flows from electricity sales."
Adoption in the U.S. is accelerating as both federal and state agencies are pushing for and incentivizing community solar project in several U.S. states. These projects provide federal Investment Tax Credits (ITCs) and additional state specific incentives such as tax credits, grants and rebates.
The analysts mentioned that notably, "the infrastructure bill signed into law by President Biden in November 2021, includes provisions for investment of over $65 billion toward the enhancement of the country's electricity grid for better integration of renewable energy." If passed in its present form, the bill would include a 10-year extension of the ITC from 26% to 30% and provide for direct cash payments to taxpayers bypassing the use of tax credits.
The analysts pointed out that UGE stated in its Q3/21 earnings release that it expects to realize increases in operating capacity of 1.6MW in the rest of 2021, 35.7MW in 2022 and 102.5MW in 2023.
The research firm commented that taking the increases into consideration, it projects UGE's topline revenues will be $2.0M, $7.1M, and $19.7M, during 2021, 2022, and 2023, respectively, and that blended gross margins will improve from 29.5% in 2021, to 45.9% in 2022 and 65.0% in 2023. The research firm commented that taking the increases into consideration, "we are projecting revenues to exceed $100M in 2026, generating over 80% in blended gross margins."
UGE International is a turn-key solar energy solutions provider headquartered in New York. The renewable energy company develops, builds, owns, and operates end-to-end mid-scale solar projects in the U.S. and the Philippines and to date has successfully deployed sustainable projects totaling 500MW. The firm endeavors to deliver cleaner and more affordable solar energy solutions to consumers and businesses and has refocused its business strategy from project engineering and construction to development and longer-term management of solar projects that generate higher margin, recurring revenue streams.
H.C. Wainwright & Co. stated that it is initiating coverage on UGE International Ltd. with a price target of CA$3.50/share. UGE International shares trade on the TSX Venture Exchange under the symbol "UGE" and last closed for trading at CA$1.63 on Friday, December 17, 2021. The company's shares also trade under the ticker symbol "UGEIF" on the OTCQB market.
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Disclosures for HCW, UGE Intl Ltd., Dec. 15, 2021
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