Ormat Technologies, Inc.

ORA Details

Ormat Technologies, Inc. (NYSE: ORA) is engaged in the business of providing renewable power and energy solutions to its customers globally. It provides clean, reliable energy solutions which it generates from geothermal and recovered energy. It also provides energy management and storage solutions.

Q2FY21 Results Highlights (For the Period Ended 30 June 2021)

Reduced Revenue: Overall revenue declined by 16.0% YoY to $146.9 million mainly due to lower product segment revenue, down by 83.0% YoY to $7.4 million which got adversely  impacted by COVID-19. This partially offsets the sustained top-line growth in both electricity and energy storage segments.

Net Income at $13.0 million: The company logged a decline in its net income attributable to stockholders to $13.0 million from $23.0 million in the pcp, representing a decline of 43.5% primarily due to lower revenue in the product segment and lower gross profit at the electricity segment.

Key Data (Source: Company Reports)

Recent Updates

Bagged Contract: The company, on 11 August 2021,  bagged a supply contract to deliver products to a 10 MW of geothermal air-cooled Ormat Energy Converters (OEC) to Polaris Infrastructure Inc to support the San Jacinto geothermal facility in Telica, Leon, Republic of Nicaragua.

Signed Long Term Agreement: ORA, on 10 August 2021,  entered into a long-term resource adequacy agreement with Pacific Gas and Electric Company (PG&E) for its under-construction 20MW/40MWh Pomona-2 facility. The agreement aims at delivering 10MW of resource adequacy to PG&E. Further, the Pomona-2 facility will take part in the energy and ancillary services markets that  are being operated by the California Independent System Operator (CAISO).

Acquired TG Geothermal Portfolio, LLC: As per the press release dated 14 July 2021, the company has completed the acquisition of TG Geothermal Portfolio, LLC (a subsidiary of Terra-Gen, LLC). It has paid $171 million for the entire equity interests in a portfolio of entities and assumed debt and associated lease obligations with a book value of around $206 million as of 30 June 2021. Post  this acquisition,  the company  owns and operates two geothermal power plants in Nevada at Dixie Valley and Beowawe that have an overall net generating capacity of around 67.5 MW. Further, ORA also owns rights to a greenfield development asset - Coyote Canyon.

Bagged Supply Contract

Product Supply Agreement: The company, on 17 June 2021, updated that it has bagged a new products supply contact with Star Energy Geothermal Salak to extend the Salak geothermal field in Indonesia. As per the contract, ORA will supply an air-cooled Ormat Energy Converter to be used in the new 14 MW Salak geothermal power plant that will assist in 100% geothermal fluid reinjection. It expects to earn revenue partly in 2021 and the rest in 2022.

Outlook

Guidance: ORA is expecting to achieve revenue in the range of $650 million and $685 million in FY21. Moreover, the company anticipates achieving adjusted EBITDA in the range of $400 million and $410 million in FY21.

On Track to Increase its Portfolio to Around 1.5 GW by 2023: The company is going as per the plan of increasing its overall geothermal, energy storage, and solar generating portfolio to around 1.5 GW by 2023 driven by the recent completion of the expansion of the McGinness Hills coupled with the inclusion of the recently acquired Dixie Valley and Beowawe assets, and its internal growth. Besides, the addition of a 20MW/40MWh Pomona-2 facility will boost ORA’s current 83MW/176MWh operating energy storage portfolio and will assist its plan of adding further energy storage projects in the range of 200-300MW by 2023.

Key Risks

The company’s global operations are exposed to risks like foreign laws and regulations along with geopolitical risk, and acts of terrorism.  Besides, a sustained drop in product backlog would have an adverse bearing on its target of full utilization of the production and manufacturing facilities.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation

The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and  a target price arrived  reflects a rise of low double-digit (in % terms). A slight premium has been applied to EV/Sales Multiple (NTM) (Peer Average), considering the significant increase in product segment backlog that grew by 59% to $59.1 million as of 4 August 2021 along with the steadily  accelerating  of its sales pipeline and sustained growth in its energy storage and electricity segments.

For the purposes of relative valuation, peers like Montauk Renewables Inc (MNTK.OQ), Nextera Energy Partners LP (NEP.N), among others have been considered.

Considering the aforementioned factors, and decent outlook, we give a “Buy” recommendation on the stock at the current market price of $68.48 per share, up by 79% on 25^th August 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.