Ormat Technologies Inc

ORA Details

Ormat Technologies Inc (NYSE: ORA) operates in three business segments i.e. Electricity Segment, Product Segment and Energy Storage Segment. Under Electricity Segment, the company develops, builds, owns and operates geothermal, solar PV and recovered energy-based power plants in the United States and geothermal power plants in other countries around the world.

Under Product Segment, the company designs, manufactures and sells equipment for geothermal and recovered energy-based electricity generation and remote power units and provides services relating to the engineering, procurement and construction of geothermal and recovered energy-based power plants.

Under Energy Storage Segment, the company provides energy storage, related services as well as services relating to the engineering, procurement, construction, operation and maintenance of energy storage units.

Results Performance (Year ended 31 December 2020)

The Electricity segment contributed 76.8% to ORA’s total revenues in 2020. The company derived 63.1% of its Electricity segment revenues from its operations in the U.S. and 36.9% from the rest of the world. The Product Segment contributed 21.0% to ORA’s total revenues, and the company derived 3.9% of its Product Segment revenues from its operations in the United States and 96.1% from the rest of the world. The Energy Storage Segment contributed 2.2% to ORA’s total revenues, and the company derived all of its Energy Storage segment revenues from its operations in the United States.

Key Data (Source: Company Reports)

Net Income for FY 2020 stood at $101.81 million, as compared to $93.54 million in the previous year. Under its dividend policy, the company is expected to distribute at least 20% of its annual profits available for distribution by way of quarterly dividends.

Key Data (Source: Company Reports)

Outlook:

Globally, there is a continued increase in the use of renewable energy. The output from wind and solar PV power plants can change significantly over short periods of time due to environmental conditions like cloud movement and fog burn off and cause instability on the electric grid. As a result, energy storage is becoming a key component of the future grid.

According to Wood Mackenzie's (formerly GTM Research) Energy Storage Monitor for Q3FY20, approximately 3.3 GWh of new energy storage projects were installed in the United States in 2020 and this number is expected to grow more than seven times to approximately 24.4 GWh in 2025.

The solar PV market continues to grow, driven by constant decline in equipment prices and an increasing desire to replace conventional generation with renewable resources that are commonly supported by favorable regulatory policies.

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

Stock Recommendation:

The company’s gross margin, EBITDA margin and net margin for FY20 stood at 38.1%, 48.8% and 14.4%, respectively, implying decent fundamentals of the company.

ROE for FY20 stood at 5.3%, better than the industry median of 0.8%, implying that the company generated better returns for the shareholders than the peer group. Current ratio for FY20 stood at 3.13x, better than the industry median of 1.17x, implying that the company possesses better capabilities to meet the short-term obligations than the peer group. Debt to Equity ratio for FY20 stood at 0.81x, lower than the industry median of 3.20x, depicting reasonable leverage position of the company.

We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price which reflects a rise of low double-digit (in % terms).

We believe that the stock might trade at a slight premium as compared to its peer average EV/Sales (NTM Trading multiple) given the diversified business and integrated hybrid model for electricity generation, strong pipeline projects in geothermal and energy storage segments, and expansion plans in Indonesia, Kenya, Ethiopia, and New Zealand.

Considering the aforesaid facts, we give a “Buy” recommendation on the stock at the current market price of US$74.160 per share on March 24, 2021.

ORA Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

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