National Bank rating... Stock Rating: Sector Perform
Risk Rating: Speculative
COMPANY PROFILE
Alterra is an electrical generation company that has 117 MW (net) geothermal electrical in
production in Iceland and Nevada, a 94 MW (net) hydro project in the province of BC and a 36
MW (net) wind project also in BC. The hydro and wind projects were acquired from Plutonic
Power in 2011.
- In 2012, AXY completed the sale of 33.3% of its HS Orka stake to local pension funds, with
175 MW in production and 230 MW in expansion plans there over the next five years. An offer
to purchase the rest from the same pension funds has been entertained, though has stalled
given currency restrictions.
- AXY plans to forge ahead with its growth plans in the coming year with particular focus on
Reykjanes (80 MW expansion), Dokie wind (156 MW expansion), and its geothermal assets in
Chile, Peru and Italy.
INVESTMENT HIGHLIGHTS
- Geothermal has relatively low cost and reliable operating characteristics when compared to
renewable power alternatives. Though there are smaller companies that focus in geothermal,
most do not have growth plans beyond a small asset base. Conversely, most larger integrated
power producers only have a fraction of their assets in geothermal.
- Plutonic's asset base has offered diversification away from geothermal which, as a sector, as
seen difficult market conditions.
- Grants, loan guarantees, and tax credits have helped improve the economics of renewable
projects. Many US states have renewable portfolio standards (RPS) which mandate the use of
renewable energy and the federal government could soon follow suit. With desirable cost and
operating characteristics, good geo resources should get built.
- While some investors would prefer a dividend-paying stock, AXY believes shareholders will
be best served with growth for now - with dividends to come later.
RISK FACTORS
- The Company’s value is closely tied to the performance of its development assets. If AXY
fails to prove out the resources in its asset base, there would likely be materially adverse
consequences to its stock price.
- Though the company has successfully raising funds in the past, Alterra has already
committed more than it has for its current development program. To build out projects will
require significantly more equity and/or debt.
- Low nat. gas prices could hurt power prices in N. America for some time.
VALUATION
- Our $0.40 target is based on a discounted 9.4 EV/EBITDA multiple of our 2018 est. The
target reflects our latest equity and growth assumptions. We remain neutral on the risk/reward
profile, though AXY should react favourably if growth accelerates or a path to a dividend
becomes apparent.