Ormat
Technologies (ORA, $86.37): “Puna Plant Plague is Nearly Over”
By:
Tyler Bomba, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Ormat Technologies, Inc. (NYSE: ORA) is a renewable energy provider
that owns and operates geothermal power plants and engages in recovered energy
generation (REG). Revenue is derived
primarily from the U.S. (45.7% of 2018 revenue), with Africa and the Middle
East accounting for 40.7% of 2018 revenue.
• ORA operations of the
Puna Plant in Hawaii are still recovering after the eruption of Mt. Kīlauea in
May of 2018, with full restoration of the plant expected very soon.
• Ormat recently
announced that an amended power purchase agreement (PPA) had been reached with
Hawaii Electric Light.
• Management acknowledges
the impact some of the older plants are having on output and margins and has
plans to update most of their power plants with their new advanced technology.
• Ormat Technologies is
on pace to add 120-135 megawatts by the end of 2021.
Key
points:
Ormat Technologies has seen success, even with the
impact of the volcano eruption in 2018. Revenues have been increasing due to
expanding power generation. In 3Q19, production was increased by 4.9% to 1.4 million
megawatt hours. This is due to expansion projects, like McGinness Hills Phase 3
and Tungsten Hill. In addition, ORA has focused on increasing margins, raising
overall margins to 32.5% compared to 29.3 in the same quarter last year.
The company is nearing
the end of the repairs to the Puna Plant. Reconstruction efforts are expected
to be complete soon with the ability to deliver energy from the plant via
temporary lines. By the beginning of 2Q20, the firm expects the plant to be
completely operational, bringing back the income lost to Mother Nature.
On January 6, 2020, ORA
announced that it reached an amended PPA with Hawaii Electric Light. This new
agreement, subject to PUC approval, will expand the contracted capacity by 21%.
That expansion will bring the total capacity to 46MW. The contract also extends
the term by 25 years. The current PPA remains in place until the expansion is
complete, expected 1H22.
Management has estimated
an approximate $17 million in capital expenditures for the purposes of
maintaining current operational plants in the final quarter of 2019. This is
about 31% of all capital expenditures for the quarter and shows management’s
acknowledgment of the need to maintain and improve the power plants.
What
has the stock done lately?
Recently, the stock price
has been driven up from the PPU with Hawaii Electric Light. On January 13,
2020, ORA announced that a 10-year PPA with Silicon Valley Clean Energy and
Monterey Bay Community for the CD4 plant. Both of these events have had
positive effects on the stock. Since the initial announcement on January 3, the
price is up over 16%.
Past
Year Performance:
Over the past year, ORA has increased to
$86.37, representing over a 49% return for the past year. With all of the bad news coming form the Puna
Plant shut down, the stock has finally made a rebound. The stock is currently
trading at a forward price to earnings of 37.5x, which is high. However, the
market has been reacting positively to all of the news from the company in the
last year.
Source:
FactSet
My
Takeaway:
Ormat Technologies, Inc.
is finally recovering from the damages of the Mt. Kīlauea explosion. The plant
is on plan to open soon and with the new PPA from Hawaii Electric Light, ORA
should continue to see revenues increasing. Ormat Technologies is also
increasing capacity, further contributing to growth. In addition to top line
growth, margins have been expanding, with Management guidance suggesting that
trend to continue. Ormat Technologies is well positioning to see further stock
price appreciation and should stay in the AIM Small Cap fund for the foreseeable
future.
Source:
FactSet
