Value investing

U.S. Geothermal Wraps Up Record Year with Numerous Upcoming Catalysts

U.S. Geothermal Inc. (NYSE MKT: HTM) delivered its 16th consecutive quarter of positive cash flow, completed a share consolidation and launched a strategy to grow its market capitalization from under $100 million to over $1 billion by 2021. With tax loss selling ending in December and the ‘January Effect’ set to occur, investors may want to take a closer look at an Environmental, Social and Governance, ‘ESG’, investment opportunity moving into the new year.

In this article, we will look at the company’s success in 2016 and upcoming catalysts that could drive significant shareholder value throughout 2017.

Attractive Fundamentals

U.S. Geothermal generates consistent recurring revenue and cash flow from geothermal power plants located throughout the United States. As of December 2016, the company has 45 megawatts of capacity installed in Oregon, Nevada  and Idaho with ownership interests ranging from 60% to 100%. These projects generate about $9 million to $10 million in annual cash flow to the company with an attractive 40%+ gross margin.

As of September 30, 2016, the company reported about $13 million in cash and $25.7 million worth of current assets on its balance sheet. The company’s investor presentation lists $329 million in assets and $86 million in debt that yield a net asset value of $243 million – or $12.85 per share. On an EBITDA basis, the company lists $11 million in adjusted EBITDA that translates to approximately $6.98 per share at a 12x multiple.

Reaching Institutional Investors

U.S. Geothermal stockholders authorized its Board of Directors to enact a 1-for-6 share consolidation that went effective after the market closed on November 9, 2016. Under the terms, every six shares of issued and outstanding common stock was converted into one newly issued and outstanding share of common stock. The move increased the company’s share price from less than $1.00 per share to over $4.00 per share, as of December 2016.

Many institutional investors – such as mutual funds – aren’t permitted to purchase stock that is traded over-the-counter and/or for less than $1.00 per share. By enacting a share consolidation, the company increased its share price to a level that institutional investors could participate. These institutional investors could help add liquidity to the stock and ultimately help secure a fairer valuation for the company.

Ambitious Growth Plans

U.S. Geothermal has ambitious growth plans over the next five years. Through acquisitions and developments, the company plans to increase power output from 45 MW to over 200 MW in a move that could increase their market capitalization from under $100 million to $1 billion.

The company’s near-term development projects include:

Project
Capacity
Cost
Completion
WGP Geysers Project
30 MW
$150 Million
Q4 2018
El Ceibillo Guatemala
25 MW
$140 Million
Q2 2019
San Emidio II Nevada
10 MW
$60 Million
Q4 2018
Crescent Valley
25 MW
$130 Million
Q4 2019

* Data from Q3 2016 investor presentation.

In addition to these projects, the company is actively expanding two of its existing projects and considering four additional projects that could help it achieve its ambitious goals. Furthermore, the company is evaluating acquisitions that range from greenfield to operational projects that could immediately add capacity to its portfolio.

Looking Ahead

U.S. Geothermal made tremendous progress throughout 2016 and has numerous catalysts moving into 2017 and beyond. With an experienced management team at the helm, the company has ambitious plans to grow its business tenfold over the next five years. Investors may want to take a closer look at the company as an emerging ‘ESG’ investment opportunity with significant potential upside over the coming years.

In particular, investors involved with other geothermal and renewable energy companies, such as Ormat Technologies Inc. (NYSE: ORA), First Solar Inc. (NASDAQ: FSLR), or Capstone Turbine Corporation (NASDAQ: CPST), may want to take a closer look at the stock. Some additional renewable energy companies are Canadian Solar, Inc. (NASDAQ: CSIQ), Sunrun, Inc. (NASDAQ: RUN), Solaredge Technologies, Inc. (NASDAQ: SEDG), and Terraform Power, Inc. (NASDAQ: TERP). 

For more information, visit the company’s website at www.usgeothermal.com.