On February 23 Ormat Technologies (ORA) reported fourth quarter results that paid the price of the global economic slowdown and of delays in any U.S. plan to promote alternative energy sources.
In the company’s first business segment, electricity generation from its geothermal power plants, Ormat reported an increase in revenue of just 2.9%. Electricity generation went up 14.2% in the quarter but the average price per megawatt hour fell by 12%. That’s exactly what you’d expect in this slow economy.
In the company’s other, much smaller, products segment, the company reported revenues of $31.4 million from the sale of generating equipment to other geothermal power producers. Order backlog climbed to $90 million from $70 million.
The two segments added up to $95.3 million in revenue, essentially flat with the fourth quarter of 2008. Earnings for the quarter came to 35 cents a share. The positive surprise of four cents a share was due to higher than expected revenue in the company’s products segment.
Ormat isn’t projecting any improvement for 2010. Total revenue for the year will fall between $350 and $370 million, down from $415 million for 2009.
I’m generally in favor of waiting when a long term trend takes longer to assert itself than expected. Ormat is still the preeminent geothermal company in the world in my opinion and when the world get’s serious about doing something about global climate change Ormat will occupy a very profitable position.
The question, though, isn’t how long I can wait, but how long Ormat can.
Ormat is still a rapidly growing company—that’s one of the reasons to own it—that’s investing lots of capital to build new geothermal plants. In fiscal 2010 the company has budgeted for $364 in capital spending. That’s a hefty $90 million increase from fiscal 2009.
The company ended the quarter with $46 million in cash and cash equivalents (and with $624 million in debt) and putting that cash together with lines of credit and a $100 million construction grant, Ormat has about $421 million in available capital. The company’s operations are cash flow positive fortunately, and Ormat generated about $111 million in cash from operations is 2009.
I think you can see where my concern comes from. Ormat’s ability to finance its growth (through the construction of new geothermal plants) depends on its ability to generate substantial cash from operations. But if the global and U.S. economies remains soft and the U.S. government continues to drag its feet on setting a regulatory regime to govern alternative energy, then Ormat might not be able to generate the cash flow it needs to support its need for capital. (To understand why I’m worried about the U.S. economy in the second half of 2010 see my post https://jubakpicks.com/2010/02/16/how-to-worry-and-when-in-2010/ )
I’d definitely say this situation bears watching.
As of February 25, 2010 I’m lowering my target price for Ormat Technologies to $38 a share by December 2010 from the prior target of $49 a share by November.
Full disclosure: I own shares of Ormat Technologies in my personal portfolio.
Jim wrote:
“But if the global and U.S. economies remains soft and the U.S. government continues to drag its feet on setting a regulatory regime to govern alternative energy, then Ormat might not be able to …”. If Ormat’s future relies on new US government regulatations, it does not bode well for them. I would prefer that they had a competetive edge…
campaign finance reform . Until that is done to level the playing field for the individual voter, the “special interests” and their money will control what happens.
Begging pardons all around- I forgot to mention environmental blockage, and that same NIMBY attitude. Perhaps we could just lump all these “special interests” in one basket, and refer to them as …hmmm… how about special interests? Keeping us from formulating and putting into practice a reasonable, workable, multi-faceted national energy plan.
Cjxland, your comments regarding nuclear energy are great. However, as long as the Me Too or I-Want-It-NOW! generation controls things we will see little real construction in the field of any area of alternative energy. 99% of the rhetoric of the environmental movement is just that. Feel good statements. It is virtually impossible to translate these into concrete action because the very same people are the ones who block every last project.
rolfer1
And yet almost every state has nculear fission by-poducts stored in it. NOW. Every state that has a n-power plant does. Where do you suppose the spent fuel “waste” from the last 55 years IS stored, NOW?
WIPP isn’t in Nevada, that would be New Mexico.
Also, it has never taken 20 years to build an n-plant, and the current ideas of “fast-tracking”- simplifying the procedure by using pre-approved designs in order to allow quicker permitting- will allow one to be built and operating in 6 years or so. Not much longer than a big coal-burner.
Our “common knowledge” about nuclear power is one of the things that has us so dependent on foreign oil.
More like our “common ignorance”- and n-power is not only alive and kicking, it produces about 20% of this country’s electricity, even tho a new plant has not been built for 30 some years.
You were right about one thing tho- we could have been researching fusion, wind, solar, geothermal, clean coal, synfuels etc. all these years- but some corporate greed and paid-for politics and public ignorance and superstition has gotten in the way.
Interesting posts — I recall that nuclear fusion, which was researched and funded by DARPA in the 60’s and which produces no nuclear waste byproducts, eg. like the spent fuel rods from nuclear fission (yesterday’s, today’s and nearby tommorrow’s nuclear power technology), was abandoned. Mostly because energy “policy”, i.e. long-range planning, ruins counter to ideology. Wonder where we would be if fusion research had real funding over the past 40 years?
BTW – no state wants the spent fuel rods – not Nevada (WIPP), not Louisiana (salt formations), no anywhere. In fact, most states won’t even allow transport of fission byproducts thr their borders…. NIMBY
Also, it would take some 20 years for a nuclear fission plant to be built and to contribute any electricity – “baseload” or otherwise
Nuclear fission should be dead.
Natural Gas is where Obama should be pushing for policy change…it’s production produces domestic jobs, it’s clean burning, and it’s cheap.
ORA…buy this stock when they cut the divi
With $364 you should be able to get a really nice fax machine or a small photocopier!
Yes I know its millions just caught me as funny when I first read it.
How much can you get with $364 of capitol spending?
Jim,
Any thoughts on DGW from watch list? I’m having trouble finding any analysis on why its taken such an enormous dump in recent days.
thanks!
I have to agree with cjxland. Nuclear is the only realistic alternative energy atm.
bsdgv-
The Obama admin. is simply- finally- being realistic about energy production v. global climate change:
Nuclear power is the ONLY currently viable baseload source that we can actually expand at little cost [yes I know about ” govt. subsidies”- they are mostly loan guarantees and fee waivers, if you look hard] without adding significantly to CO2 emissions. NOW.
The keyword here is “baseload”- it means ability to provide peak power demands 24/7/365. That is where other alternative sources fail- for NOW.
We must get some money flowing to the wind, solar, geothermal, tidal possibilities… all the alternatives that will eventually help us. For NOW- electricity demand is going to DOUBLE by 2030 [not counting all those e-cars we are supposed to plug into the socket in the garage]. Nuclear, coal, and natural gas are the only reasonable baseload sources for meeting this demand- NOW. Nuclear is the only possiblity w/o a carbon footprint, and can be cheaper than both coal and natural gas if done correctly.
We are almost against the wall, and we desperately need a real and cogent National Energy Policy- which certainly should be attempting to develop every possible resource it can. Nuclear is a stop-gap…or maybe it isn’t. But it is our best bet at the moment. It is our best bet for the next 10, 20 or 30 years.
That is why the Obama administration has finally endorsed it. Reality.
[Check EXC, FPL, and few others for investing in nuclear- Jim recommended Edison International recently, if I remember correctly. With some political support and given the huge looming power demand and global warming politics, there may be some money to be made here.]
Just read to the end of their statement. Dividend will be 12 cents this quarter and 5 cents for the next 3 quarters, totallying 27 cents. (still 20 %).
Is this just posturing or good business to have a dividend when megawatt prices are going down?
Thanks
Jim,
Do you think Ormat would (or should) cut its dividend?
I know it only about 20% of net, but seems like every nickel (or 6 cents) would count.
I realize the analyst would sharply critize a (hopefully), short term move like that, but a cash conserving move like that would be something a prudent investor would respect.
Thanks for all your insight.
Jim,
What did you think of TC’s results that were released today ?
> … but the average price per megawatt hour fell by 12%. That’s exactly what you’d expect in this slow economy.
Hmmm… Inflation? What inflation?…
> … the U.S. government continues to drag its feet on setting a regulatory regime to govern alternative energy, …
Well, by now we all know what the Obama administration understands from alternative energy: nuclear.
> Ormat might not be able to generate the cash flow it needs to support its need for capital.
It would be sad if Ormat goes under.
Oh Boy! I did learn. Do not put all your eggs in one basket. Now its my turn to get a new basket and some eggs.