- Written by Marc Courtenay
- Friday, 03 April 2009
Ormat Technologies (NYSE:ORA) recently secured a $65 million contract for a geothermal plant in Costa Rica. Since geothermal as an alternative energy is both well understood and economical, more and more countries, including the United States, will begin to turn to geothermal power.
Ormat has essentially cemented itself as the go-to company in the industry of geothermal energy,and thus we believe it will eventually be worth many multiples of its current price when geothermal energy begins to take off. Why are we not buyers yet? Ormat will be releasing its Q4 and 2008 earnings results,and that could trigger much volatility in its shares. Plus we'd like to catch it "on sale" which is likely to occur between now and the end of 2009.
In a recent company presentation an Ormat representative spoke on the "regulatory environment" that impacts the prospects for ORA: "The regulatory environment continues to be favorable for the renewable energy both in the US and internationally.
"In the US the PTC was extended two years last October and the stimulus includes the host of provisions that we greatly benefit during renewable energy industry. As far as renewable energy is concerned the bill involves four areas, tax incentive, financing, grant, and direct action. Most specifically on the tax incentive side there is a one-year extension of the 50% bonus depreciation. More importantly, the act called for a three year extension of the PTC, until 2013 and give an option to forgo PTC and claim a one-time 30% investment tax credit.
" In addition, the bill gives an option to forgo investment tax credits and receive cash grant from the US treasury for 30% of the project cost. This grant will be available for projects placed into service into 2009 and 2010 or for those who are starting construction during 2009 or 2010 and are completed by the deadline. The deadline for geothermal project is 2013. In addition to the grant, the financing aspect of the bill include the DOE loan guarantee for renewable energy project, that start construction by September 30, 2011. This should substantially reduce cost of date for the renewable energy project. The Act also authorizes tax credit bonds for special application.
"In looking outside the United States, the regulatory involvement continues to be beneficial to Ormat. During the fourth quarter of 2008, we were able to benefit from a mandate of the executive board of the United Nations (inaudible) and climate change. Our Amatitlan geothermal project in Guatemala was officially registered as a Clean Development Mechanism or CDM as it is called. The project is expected to effect emissions of approximately 83,000 (inaudible) and if such, it will be eligible to receive 35 dimension reduction credit which is equivalent to thermal carbon dioxide, which can be glided or soaked. The project has a long-term contract to sell Amatitlan [ph] credit to European value."
We are grateful for companies like Ormat Technologies, and while we are waiting for a good entry price, let's keep it on our "radar screen." The book value of the stock is around $18.45. We usually like to buy undervalued, well-managed companies that are trading near their book value.
The two biggest concerns we have for the company is the amount of debt seems high in comparison to the trailing-twelve-month operating cash flow. Recent reported total debt was (most recent quarter) $346 million. And the operating cash flow was only $105 million with total cash (m.r.q.) was reported at a little over $38 million.
The being said, Ormat Technologies continues to be one of the most important companies in the geothermal and recovered energy power business in the United States and internationally. They are not to be ignored and if they can weather this international credit crisis they might be a big beneficiary in time of government incentives and economic stimulus programs centered on sustainable energy techologies.
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