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.

FY20 Results Performance (For the Period Ended 31 December 2020)

The company recorded a 5.5% YoY decline in overall revenue to $705.3 million due to lower revenue from the product segment which declined by 22.5% YoY to $148.1 million, overshadowing the increase in revenue from both the electricity segment which grew by 0.2% YoY to $541.4 million and energy storage segment which grew by 7.5% YoY to $15.8 million. Adjusted EBITDA for the year stood at $420.2 million, an increase of 9.3% over the previous year. Further, the net income of the company was reduced by 3% YoY to $85.5 million due to the inclusion of the effect of non-recurring tax benefits in the previous year.

Financial Snapshot (Source: Company Reports)

Q1FY21 Results Highlights

Overall revenue during the period declined by 13.4% YoY to $166.4 million mainly due to lower product segment revenues, down by 81.8% YoY to $8.6 million which was impacted by the COVID-19. Further, the company logged net income attributable to stockholders for the period to $15.3 million from $26.0 million in the pcp, representing a decline of 41.4%.

Meanwhile, the board has declared a dividend of $0.12 per share.

Recent Update

The company, on 24 May 2021, announced that it has entered an arrangement with TG Geothermal Portfolio, LLC to acquire two contracted geothermal assets in Nevada along with a greenfield development asset, and an underutilized transmission line. This particular transaction is anticipated to close in H2FY21. The company expects that the two operating power plants to produce $55 million in revenue and around $37 million in EBITDA in 2022.

ORA, on 12 May 2021, had entered a 15-year power purchase agreement (PPA) with the Clean Power Alliance (CPA), which entails the purchase of 14 MW of clean, renewable energy by CPA from ORA’s Heber South Geothermal facility in Imperial Valley, CA.

Outlook

Q1FY21 result of the company reflects on continued strength in its electricity and Energy storage segment. Product segment, though got adversely impacted by the COVID-19, the segment is likely to show resilience post the lifting of the pandemic-related restrictions which has contributed to a rebound in business sentiment.

ORA is expecting to achieve revenue in the range of $645 million and $680 million in FY21. Moreover, the company anticipates achieving adjusted EBITDA in the range of $400 million and $410 million in FY21. Meanwhile, the company has increased the energy storage pipeline to 2 GW.

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:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock has majorly been in a downtrend. However, it has undergone a technical rebound to be sold at the higher level. The technical analysis RSI with a reading around 41 suggests neutral momentum for the stock.

Going forward, the stock may have resistance around the 61.8% retracement level of $82.37 whereas support could be around $64.00.

Stock Recommendation

The stock declined by ~10.7% in 6 months. It has made a 52-week low and high of $53.44 and $128.87, respectively.

We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price that reflects a rise of low double-digit (in % terms). We have assigned a slight premium to EV/Sales Multiple (NTM) (Peer Average), considering its robust growth plan which aims at tremendously boosting its solar along with geothermal capacity as well as fast-tracking its storage capacity. It plans to achieve a portfolio target of 1,455 MW – 1,575 MW by YE-2023. For the purpose of relative valuation, we have taken peers like AES Corp (AES.N), 'Clearway Energy Inc (CWENa.N), to name a few.

Considering the aforementioned factors and decent outlook, we give a “Buy” recommendation on the stock at the current market price of $68.95 per share, down by 0.58% on 2^nd June 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.

Disclaimer

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