Ormat Technologies, Inc.

ORA Details

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

Result Performance – For the first quarter ended 31 March 2021 – (Q1FY21)

For the first quarter ended 31 March 2021, total revenue stood at $166.4 million, down 13.4% YOY, primarily due to an 81.8% YoY fall in revenue from the products segment which was impacted by COVID-19. However, the electricity segment, the largest contributor to the total revenue, recorded 1.5% YoY growth in revenue, thereby, partially offsetting loss of total revenue. The period also witnessed a 589.1% YoY growth in revenue from the energy storage segment.  Adjusted EBITDA for the quarter fell 6.4% YOY to $99.2 million primarily due to a $9.9 million fall in product segment gross profit and BI insurance income of $4.9 million in Q1FY20. Net income attributable to shareholders for the quarter was reported at $15.3 million a fall of 41.4% YOY primarily due to the February power crisis in Texas, which led to emergency regulations impacting the Rabbit Hill energy storage project, as well as the slowdown in the products segment revenue.

Key Data (Source: Company Reports) 

Key Risks

The company is exposed to  operational risk, credit risk, global supply chain disruptions risk geological risk. Besides, it is also exposed to the risk of customers’ concentration to specific projects and regions which could result in huge revenue loss on customers switching their loyalty.

Outlook

The company’s Q1FY21 result reflects on continued strength in electricity and energy storage segments. The company is likely to accelerate growth in these two segments as governments around the world are supporting renewable energy and investing in infrastructure for clean energy. The company is well-placed to capitalise on this trend. It expects to increase its combined geothermal, energy storage and solar generating portfolio to about 1.5GW by 2023. This will enable an annual run-rate of $500 million in adjusted EBITDA towards the end of 2022.

The company, in the meanwhile, has provided guidance for FY21 whereby it expects total revenue to come in the range of $645-$680 million, which is to be driven by electricity revenues between $570-$580 million, product revenues in between $50-$70 million and energy storage revenues in between $25-$30 million. Further, the company also expects adjusted EBITDA for FY21 to come between $400-$410 million.

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/ 

While remaining in a downtrend, the stock gave a higher close in the previous week with a ‘Bullish Engulfing’ pattern formed on the weekly chart. Taking a cue from the previous week, the stock on the first trading session of the ongoing week has given a ‘Doji’ close thereby exhibiting the trader’s indecisiveness. The technical indicator RSI with a reading around 44 and a curve at the end pointing up, suggests neutral to up momentum for the stock.

Going forward, the stock may have resistance around the 61.8% retracement level of $82.21 whereas support could be around the previous week’s low of $65.00.

Stock Recommendation

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 a strong focus on geothermal and recovered energy power business. In addition, the company plans to connect two injection wells in Q2FY21 and targeting to close full capacity in mid-2021. The company released two energy storage systems for construction, the 20 MW/MWH Andover and the 7 MW/MWH Howell, that are situated in New Jersey and would be selling ancillary services to PJM. The company is aiming the commercial operation in the H1 FY 2022. The stock has made a 52-week low and high of $53.44 and $128.87, respectively.

Meanwhile, McGinness Hills expansion is completed and is in late stage of start-up.

Considering the aforementioned factors along with the current trading level and decent outlook, we give a “Buy” recommendation on the stock at the current market price of $69.69 per share, down by 0.63% on 2^nd July 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.

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