ORMAT TECHNOLOGIES (NYSE:ORA) BY: Kelvin Li

Transcription

1 ORMAT TECHNOLOGIES (NYSE:ORA) BY: Kelvin Li

2 Company Overview Revenue Segmentation Details of Operations Product 42% Electricity 58% Other Foreign Countries 6% Kenya 20% United States 74% Ormat Technologies (NYSE:ORA) is one of the world s largest geothermal and recovered energy power businesses All contracts are under a PPA weighted average life of 15 years and are signed before development occurs, in 24 different countries Electricity Segment Develops, builds, and owns geothermal and recovered energy based power plants and sells to the grid Product Segment Designs, manufacturers, sells, repairs, and maintains geothermal equipment for other plants Annotated Stock Chart YTD and Financial Data $55 $50 $45 ORA acquires 79% stake of Geothermie Bouillante from SAGEOS Q4 Earnings release increase 120% YoY $5 billion potential bids for Chevron s geothermal assets in Indonesia 500K 450K 400K 350K Financial Data Share Price (Sept. 16, 2016) 48.8 Shares Out $40 $35 $30 $25 $20 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Notes: Data taken from CapitalIQ and ORA Annual Report Volume Ormat agrees on settlement with former employees Close 300K 250K 200K 150K 100K 50K 0K Mkt. Cap (mm) EV (mm) P/E (LTM) 16.0x EV/EBITDA (LTM) 10.7x % of 52 Wk. High 95.2% Dividend Yield 1.0% 1

3 Investment Thesis : ORA s Growth Not Highlighted in Share Price Outperformance of Peers Shadows Faster Earnings Growth (1) 150% P/E 34x 140% ORA 130% 120% 110% 100% ~P/E 16x ICLN 90% 80% 70% 60% 50% Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Well Positioned for Emerging & Domestic Market Growth 40.0x 35.0x 30.0x 25.0x 20.0x 15.0x 10.0x 5.0x 0.0x Leader in the Fastest Growing Geothermal Sector (2) Most geothermal plants are located in high heat locations therefore utilizing steam plants, ORA Is the official leader in binary plants which can excel in low heat environments 2015 Installed Geothermal Capacity in Emerging Markets Steam & Flash Geothermal 148 MW Binary Geothermal 208 MW 153 MW or 74% of installed binary capacity in 2015 was from ORA Management Strategy to Enter Solar Energy and Energy Storage Space Increasing over-generation in the middle of the day from solar energy in developed countries (Duck Curve) o Geothermal is flexible and deployable and can help balance out the periods where the sun is not out. Global Geothermal Alliance has goal of global capacity to jump from 13 GW of geothermal energy to 65 GW in 2030 with a focus on emerging markets o ORA has new capacity installments are already underway in Indonesia (fastest growing country) Only Vertical Integrated Geothermal Player (intends to enter solar energy and energy storage market) Development Engineering Manufacturing Construction Operation Notes: (1) ICLN is a renewable ETF (2) Oppenheimer Initiation of Coverage EBITDA Margin 37.5% 36.0% 38.9% 44.8% 46.8% LFCF Margin (28.3%) (26.5%) (40.9%) 0.8% 13.2% Management intends to shift towards solar energy and energy storage which is bolstered by increased free cash flow generation ORA will diversify geographically and by energy source Ex. Terraform Power Solar 59% Wind 41% 2

4 Catalysts & Risks Partnership w/ Toshiba (Catalyst) (3) Signed strategic partnership with Toshiba to co-operate on many potential geothermal projects (Stronger diversified product offering) o Ex. May 2016, contract in Turkey where Toshiba did 72 Mw in flash, and Ora did 23MW in binary Binary (ORC) & Flash & Steam 100 ( C) 350 ( C) Temperature Developmental Phase (Risk) Heller-Sponsored GEO Act Reduces Development Time (Catalyst) Excludes most geothermal exploration activities in public lands from a environmental review process under National Environmental Policy Act (NEPA) Reduction in ORA s development cycle by one to four quarters Public lands account for 90% of developable US geothermal resources Commodity Price Fluctuations & Country Risk (Risk) 50% of costs are associated during pre-drilling to drilling Mitigating Factor: Oldest drilling rig of 26 years Founded in 1965 Employees 20+ Geologists Making it one of the largest Geothermal teams in the world 2015 Electricity Segment Revenues Developed 70% Acquired 30% A cheaper price of oil may hinder alternative energy demand Unanticipated changes to regulatory environment Mitigating Factor: Correlation between ORA stock and oil are not too high ORA is diversified across 24 different countries ORA % Vs. WTI Oil % 2yr 15% R² = % 5% 0% -20% 0% 20% -5% -10% Notes: (3) Range in geothermal production by temperature taken from ORA investor presentation 3

5 Summary of Valuations Football Field Summary 250 Min to 25th 25th to Median Median to 75th 75th to Max Avg. Median Avg. 75th Percentile EV/Rev (LTM) 7.8x-13.0x EV/Rev (FY+1) 6.4x-12.1x 7 EV/MW 1.6x-4.7x EV/EBITDA (LTM) 10.2x-22.4x EV/EBITDA (FY+1) 7.8x-15.1x P/BV (LTM) 1.5x-3.2x DCF (Base) 13.0x-17.0x DCF (Bull) 13.0x-17.0x DCF (Bear) 13.0x-17.0x Analyst Estimates Returns Summary Returns Normal Premium Last Price Dividend Yield 1% 1% Target Price Total Return 34% 64% Alpha (α) 23% 53% Justification for Premium Only Vertically Integrated Geothermal Company Opportunities to cut costs and benefits of supply chain Leader in Binary Geothermal Production Responsible for 74% of installed binary capacity in 2015 Easily Deployable Assets w/ Strong Development Deployed 70% of its current energy generating assets Highly Under Levered Compared to Peers 2.8x Debt/EBITDA compared to 8.8x of peers Notes: Financials taken from 10k and peer data from CapitalIQ 4

6 Appendix 1 : DCF Projections DCF Projection Schedule DCF PV of CF (Base Case) Waterfall Chart CF 2016 CF 2017 CF 2018 CF 2019 CF 2020 CF 2021 CF 2022 CF 2023 CF 2024 CF 2025 CF TV (Multiples) 3,263 3,838 Total EV WACC and TV Details Rf 1.69% Beta 1.2 Rm 10% Cost of Equity 11.4% Terminal Multiple 15.5x Weight of equity 56.1% Weight of Debt 43.8% Cost of Debt 6.0% Tax Rate 25.0% WACC 8.3% Projection Summary 2013A 2014A 2015A 3Yr Avg. 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Electricity Segment YoY Growth (Base) 5% 16% -2% 6% 6% 6% 6% 6% 5% 5% 5% 5% 4% 4% Product Segment YoY Growth (Base) 2% -8% 20% 5% 5% 5% 4% 4% 4% 4% 3% 3% 3% 3% Intersegment YoY Growth (Base) -23% 20% 9% 2% 2% 2% 1% 1% 1% 1% 1% 1% 1% 1% Electricity Segment YoY Growth (Bull) 5% 16% -2% 6% 7% 7% 7% 7% 6% 6% 6% 6% 6% 6% Product Segment YoY Growth (Bull) 2% -8% 20% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% Intersegment YoY Growth (Bull) -23% 20% 9% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% Electricity Segment YoY Growth (Bear) 5% 16% -2% 6% 6% 6% 5% 5% 4% 4% 3% 3% 2% 2% Product Segment YoY Growth (Bear) 2% -8% 20% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% Intersegment YoY Growth (Bear) -23% 20% 9% 2% 2% 1% 1% 1% 1% 1% 1% 1% 1% 1% SG&A % of Rev. 9% 8% 8% 8% 7% 7% 7% 6% 6% 6% 6% 5% 5% 5% D&A % of Rev. 20% 18% 18% 19% 19% 19% 19% 19% 19% 19% 19% 19% 19% 19% R&D % of Rev. 1% 1% 0% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% Exploration Costs % of Rev. 1% 1% 3% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% Other Operating Expenses % of Rev. 55% 52% 45% 51% 46% 45% 45% 45% 44% 44% 44% 44% 44% 44% Tax Rate 7% 11% -7% 4% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% Capex % of Rev. 38% 27% 26% 30% 29% 29% 28% 28% 27% 27% 26% 26% 25% 25% Increase in NWC % of Rev. 5% 12% -1% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% Notes: Numbers mainly projected off historic average % of Rev. Bull and Bear scenarios were +1% or -1% to historic 3 year avg. (Beta was unlevered and levered from comparables) 5

7 Appendix 2 : Comparables & Capitalization Structure Comparable Companies Analysis (4) Mkt. Cap EV Shares EV/Revenue EV/MW EV/EBIT EV/EBITDA P/BV P/E EBITDA Debt/ Debt/ (mm) (mm) Out. (mm) LTM FY + 1 LTM LTM FY + 1 LTM FY + 1 LTM LTM FY + 1 Margin % Capital EBITDA TerraForm Power, Inc. (NasdaqGS:TERP) x 9.0x 4.7x 34.7x 37.9x 16.6x 11.8x 1.5x NM NM 64% 50% 9.9x NRG Yield, Inc. (NYSE:NYLD.A) x 7.1x 1.6x 19.1x 16.0x 10.2x 8.8x 3.2x 24.6x 20.2x 72% 66% 7.4x Pattern Energy Group Inc. (NasdaqGS:PEGI) x 12.1x 1.8x 120.0x 114.7x 22.4x 15.1x 2.7x NM 105.0x 54% 53% 9.5x NextEra Energy Partners, LP (NYSE:NEP) x 6.4x NM 20.8x 12.6x 12.6x 7.8x NM 48.0x 25.0x 73% 67% 8.5x Ormat Technologies, Inc. (NYSE:ORA) x 5.0x 4.6x 16.6x 15.8x 10.5x 10.1x 2.4x 16.2x 23.7x 48% 44% 2.8x 75th Percentile x 9.8x 3.2x 56.0x 57.1x 18.1x 12.6x 3.0x 42.2x 65.0x 72% 66% 9.6x 25th Percentile x 6.9x 1.7x 20.4x 15.1x 12.0x 8.5x 2.1x 30.5x 22.6x 61% 52% 8.2x High x 12.1x 4.7x 120.0x 114.7x 22.4x 15.1x 3.2x 48.0x 105.0x 73% 67% 9.9x Min x 6.4x 1.6x 19.1x 12.6x 10.2x 7.8x 1.5x 24.6x 20.2x 54% 50% 7.4x Mean x 8.7x 2.7x 48.7x 45.3x 15.5x 10.8x 2.5x 36.3x 50.0x 66% 59% 8.8x Median x 8.1x 1.8x 27.8x 26.9x 14.6x 10.3x 2.7x 36.3x 25.0x 68% 59% 9.0x Capitalization Structure Details Interest Coverage Ratio Total Senior Bonds and Notes 63.4% Total Term Loans 36.6% 5.0x 4.0x 3.0x 2.0x 1.0x 0.0x 3.8x 4.4x 2.3x 2.8x 2.8x 3.0x Though majority of debt is high yield (non-amortized), ORA is still highly under levered on a leverage ratio basis (2.8x compared to peers 8.8x) Notes: (4) Peers were screened from Oppenheimer equity research and market cap outliers were removed 6

8 Appendix 3 : Types of Geothermal Plants Types of Geothermal Plant Methods Dry Steam Power Plant Flash Power Plant Binary Power Plant Used to generate power directly from the steam generated inside the earth We do not need additional heating boilers and boiler fuel Not common since natural hydrothermal reservoirs dry steam are very rare The most common type of geothermal power plant Hot water flows to the tank where the pressure turns it in to steam powering a turbine Excess water is flown back to the reservoir Uses high temperature geothermal water to heat another fluid which has a lower boiling point than water This fluid vaporizes to steam, drives the turbines, then condenses to liquid to begin the cycle again Water used to heat fluid is recycled in to the ground reservoir Notes: Images taken from Energy.gov 7

9 Appendix 4 : Ownership Summary & Organic Growth Institutional Ownership Offers Rationale Investors Public Ownership Summary Public 17.9% ORA s Organic Growth Increases FCF for Future Acquisitions (5) Strong organic growth has allowed ORA to have impressive leverage ratios as the dependency for capital raises are unnecessary Last equity issuance was in 2012 FCF driven from organic growth, pressures to expand through acquisitions of solar and energy storage VC/PE 14.8% Institutions 67.3% Traditional Investment Managers 75.8% Insurance Companies 5.3% Hedge Fund Managers (<5% stake) 2.8% Corporate Pension Sponsors 2.7% Government Pension Sponsors 2.2% Banks/Investment Banks 0.7% Family Offices/Trusts 0.1% VC/PE Firms (<5% stake) 0.1% Unclassified 10.6% Total 100.0% Notes: (5) Chart taken from investor presentation 8

10 WACC WACC WACC Appendix 5 : ORA Growth Vs. Industry & DCF Sensitivity Tables ORA Compared to 50 Renewable Companies Screening Criteria 1) Market Capitalization (USD): is greater than 500 2) Electric Utilities or IPP and Renewable Electricity Producers 3) Geographic Locations: United States and Canada (Primary) 6.7% % Revenue Growth (1yr) 7.8% 7.7% ORA Mean 75th Percentile -0.1% 25th Percentile 6.7% revenue growth vs. a 2% growth in geothermal demand (2015) 50% 40% 30% 20% 10% 0% -10% -20% 4% Renewable Energy Growth % by Source 40% % Growth in US Demand Growth in geothermal is not the highest but it is predictable and is neither slowing down or volatile These predictable cash flows earn ORA a lower cost of equity (Note: Generally enters in 15 Yr PPA Contracts) 2% 22% 4% 7% % P -9% Geothermal Hydroelectric power Solar 20% DCF Sensitivity Tables Share Price Sensitivity (Base Case) Terminal EV/EBITDA Multiple 62x 13x 14x 15x 16x 17x 6.3% % % % % Share Price Sensitivity (Bull Case) Terminal EV/EBITDA Multiple 84x 13x 14x 15x 16x 17x 6.3% % % % % Share Price Sensitivity (Bear Case) Terminal EV/EBITDA Multiple 54x 13x 14x 15x 16x 17x 6.3% % % % % Notes: Screen from CapitalIQ, Geothermal demand from IEA 9