Ormat Technologies, Inc. (ORA) entered into a deal with TG Geothermal Portfolio, LLC (a subsidiary of Terra-Gen, LLC) to buy two geothermal assets in Nevada with a total net generating capacity of 67.5 MW (net), a greenfield development asset adjacent to one of the plants, and an underutilized transmission-line which has a direct connection to CAISO. Shares jumped 5.6% on the news and closed at $69.30 on May 24, up almost 3% from the previous day.
Ormat is an international technology company providing alternative and renewable geothermal energy solutions.
The deal is subject to regulatory and other customary approvals and is expected to close in the second half of 2021. (See Ormat Technologies stock analysis on TipRanks)
Per the terms of the deal, Ormat will buy 100% of the equity interests of the entities that own the assets for $171 million and will assume debt and associated lease obligations of around $206 million book value as of March 31, 2021.
The assets to be acquired include a 56 MW (net) Dixie Valley geothermal power plant, a 11.5 MW Beowawe geothermal power plant, Rights to Coyote Canyon, a greenfield development asset, and an underutilized transmission line capable of handling between 300MW and 400MW of 230KV electricity.
Commenting on the deal, Doron Blachar, CEO of the company said, “This transaction bolsters our leadership position in the western United States, and particularly in Nevada, and increases our ability to provide electricity to both California and Nevada to help each states’ utilities meet their expanding clean energy requirements…Together with the projects’ skilled employees, I am confident that we can increase significantly the profitability and value of the acquired assets.”
The proposed deal will fast-track Ormat’s strategic growth plans to increase its Electricity segment to a 1GW portfolio and is expected to increase the geothermal revenue and EBITDA of the projects by more than 20%.
Ormat projects the two operating power plants to add $55 million in revenue and $37 million in EBITDA in 2022.
With the underutilized transmission line, the company expects to reduce its electricity transmission expenses in the future by increasing its capabilities to transfer additional capacity from Nevada to the California power market, subject to third-party grid connectivity.
Following the announcement of the deal, Oppenheimer analyst Noah Kaye assigned a Buy rating to the stock with a price target of $82. This implies 18.3% upside potential to the current levels.
Kaye said, “With the primary asset’s PPA with SoCalEdison not expiring until 2038, significant operational/financing synergies, and both greenfield and expansion optionality, we believe the deal provides ORA with good value and will be tracking progress towards closing (est. 2H21). We continue to see accretive project M&A as an arrow in ORA’s quiver to support core Electricity segment growth.”
The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 2 Holds and 1 Buy. The average analyst price target of $79.33 implies 14.5% upside potential to current levels.
According to TipRanks’ Smart Score system, Ormat gets a 5 out of 10, which indicates that the stock is likely to perform in line with market averages.
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