Company Overview: Ormat Technologies, Inc. (NYSE: ORA) is a vertically integrated company majorly engaged in the geothermal and recovered energy power businesses and focuses on expanding its business into different energy storage services and solar photovoltaic.

Figure 1: Key Business Updates

Source: Company Reports, Analysis by Kalkine Group

Historical Financial Trend:

ORA demonstrated sustainable historical growth while keeping the value proposition intact. The operating revenues have been growing since FY16 except for a minor downfall in FY20 due to COVID-19 discrepancies. As a result, operating revenues grew at a 1.6% CAGR (FY16 – FY20).

Figure 2: Historical Financial Overview

Source: Analysis by Kalkine Group

First Quarter FY21 Performance:

Operating Stats: In Q1FY21, COVID-19 had a significant impact on the product segment, which lead to a 13% PcP decline in total revenue. Adjusted EBITDA nosedived by 6%, predominantly driven by a 41% PcP decline in net income, subsequently impacting operating cash flows.

Financial Position: On the balance sheet front, liquidity position stays resilient, with net debt accounting to US$936 million. ORA registered US$493 million in cash balance and US$28 million in marketable securities.

Figure 3: Quarterly Performance

Source: Company Reports, Analysis by Kalkine Group

Full-Year FY20 Performance:

For FY20, consolidated power generation stood at 6.044 million MWh relative to 6.238 million MWh in FY19. With definitive PPAs in place, ~98.2% of electricity segment revenues remained unaffected from energy price fluctuations. As a result, electricity segment revenue increased marginally by 0.2% and remained almost unaffected from COVID-19 discrepancies. On the other hand, product segment revenue declined drastically from US$191.0 million in FY19 to US$148.1 million in FY20. Irrespective of a ~5% YoY decline in total revenue, the bottom-line remained steady and growing, exhibiting high operational efficiency.

Figure 4: FY20 Key Financial Items

Source: Company Reports, Analysis by Kalkine Group

Top 10 Shareholders:

The top 10 shareholders together form ~56.28% of the total shareholding. In addition, the Orix Corp and BlackRock Institutional Trust Company, N.A., hold a maximum stake in the company at ~19.63% and ~10.05%, respectively.

Figure 5: Top 10 Shareholders

Source: Analysis by Kalkine Group

Key Metrics:

Consistent growth in revenues, primarily driven by the electricity segment, has translated into long-term sustainable growth levels. In addition, the steady SG&A expenses, minimal market impact costs in the electricity segment, and streamlined gross margin exhibit a sustainable operating cycle.

Figure 6: Key Financial Metrics

Source: Analysis by Kalkine Group

Outlook:

• Strong Growth Targets: ORA has aimed for additional capacity for geothermal & solar energy and additional capacity for energy storage. Moreover, ORA has secured 10 projects in geothermal space and 4 projects in solar energy space with expected completions ranging from Q2FY21 to FY23.
  

Figure 7: Robust Growth Targets for FY23

Source: Company Reports, Table Created by Kalkine Group

• Electricity Industry: The industry is continuously shifting from a purely centralized topology into a more distributed infrastructure that involves the commercial transfer of excess electricity generated on-site to the grid. For the aforementioned, ORA seeks opportunities from municipal utilities and electric co-operatives.

• Solar PV Business: Solar PV market has outpaced its growth estimates, predominantly attributed to reduced equipment prices and surged demand renewable resources. Considering the concrete market drivers, ORA is constructing a 20 MW AC Wister Solar PV project in California accompanied by a PPA with San Diago Gas & Electric.

Key Risks:

With operations in multiple jurisdictions, ORA assumes high currency risks. In addition, with undiversified revenue streams, ORA is exposed to high operational risks which may arise from shut-downs caused by equipment failure, the presence of hazardous materials in power plants, etc.

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

Stock Recommendation:

Stock Recommendation: ORA has delivered 3-month and 6-month returns of ~-10.236% and ~-36.325%, respectively. The stock is trading below the average of the 52-week high price of US$128.87 and the 52-week low price of US$53.44, indicating an opportunity. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and have arrived at a target price of low double digit-upside. We believe that the stock might trade at a premium compared to its peer median EV/Sales (NTM trading multiple), considering hedged commodity prices via fixed-rate PPAs, resilient electricity segment and high operational efficiency. For this purpose, we have taken peers such as Dominion Energy Inc (NYSE: DUK), Clearway Energy Inc (NYSE: CWEN), Nextera Energy Partners (NYSE: NEP), to name a few. Considering the prudent liquidity position, opportunities in solar PV, well-timed expansion strategies, and valuation, we give a “Buy” recommendation on the stock at the current market price of US$68.31, up by ~3.93% on 20 July 2021.

ORA Daily Technical Chart (Source: REFINITIV)

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.

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