The global renewable energy industry is expected to reach $831.9 billion in size by 2019, according to Transparency Market Research, growing at an 8.3% compound annual growth rate between 2013 and 2019. While falling crude oil prices has historically impacted demand for renewable energies, petroleum-based fuels account for less than 5% of energy generation markets that renewable energies like solar and wind are targeting.
While many companies are developing renewable energy technologies, the key to the success of these products lies in the implementation. In this article, we’ll take a look at UGE International Ltd. (OTC: UGEIF) (TSX-V: UG) and its focus on distributed renewable energy installations for business and government customers.
Distributed Renewable Energy
UGE is a full service renewable energy solution provider, helping companies enjoy the financial benefits of renewable energy through their end to end solution that includes site assessment, engineering, procurement, maintenance, and financing. After a renewable energy project is implemented, the company also offers an operational and maintenance contract to provide customers with peace of mind. The broad scope of its services has some similarities to companies like SolarCity Corp. (NASDAQ: SCTY) or Vivint Solar Inc. (NYSE: VSLR), though while both these companies focus on the residential sector, UGE focuses on the business and government sector that, the company says, is larger in size.
In terms of products, the company offers a modular technology platform, incorporating solar, wind, lighting, energy storage, and electronics that is combined to produce optimized energy solutions. For example, UGE combines the power of solar and wind technology with energy storage to power remote off-grid telecommunications towers. For businesses and governments, these types of solutions can dramatically cut long-term energy costs while ensuring that communications are operational at all times.
The company has also developed proprietary modeling software that analyzes sites to select the optimal solution. Leveraging this technology, the company significantly reduces the labor costs associated with identifying and designing these solutions manually, while improving the system optimization to maximize client energy savings. The proprietary modeling software also helps manage the complexity associated with implementing the numerous moving parts.
Strong Growth Opportunities
UGE listed on the TSX Venture Exchange in Canada and the OTC Markets Exchange in the U.S. during the third quarter of 2014. After doing so, the company reported third quarter revenue of $0.99 million with a 37% gross profit margin. In the same quarter the company announced $1.74 million in new sales, and that these sales would be installed over the following three months, showing growth as the company closes out the year.
In its press release, management indicated that the company saw strong sales traction during the third quarter, which could pave the way for strong revenue growth in early 2015. Management projects $4.5 million in revenue in FY 2014 that will accelerate to $10 million in FY 2015. If they materialize, these impressive growth rates would demonstrate the scalability of management’s focus on the commercial sector and represent just the beginning of what could be an interesting story to watch.
With a market capitalization of just $12 million, according to Yahoo! Finance, investors may want to take a closer look at the stock in the New Year. Revenue of $10 million in 2015 could suggest the stock is undervalued given its future growth prospects, while the potential for accelerated sales in early 2015 could provide the stock with a catalyst. With renewable energy demand poised to increase, the underlying market trends also remain strong.