Polaris Energy
Google Finance
Filing
Polaris Geothermal Filing
July 21, 2017
Q1 2017
Current Price: $16.58, Cap: $255m
1.Basic Information
(1) History
Previously the company was called Polaris Geothermal. It was found at 2003 as a holding company to acquire interest on Nicaraguan San Jacinto Geothermal Power Plant. It IPOed at 2004 through reverse merger. At 2009 through it combine with other 2 public(Western GeoPower, GTO Resources) and 1 private(Ram power). It also raised $180m at the IPO. The name was changed to Ram power.
By 2010, there are 10MW at the Nicaraguan power plant is up and running. There was a two-phase expansion plan for the Power Plant. Both are 36MW. Phase I completed at the end of 2011 and cost around $200m. Once it is up, the original 10MW was actually replaced by the Phase I. Phase II was completed at end of 2012 with spending of $200m as well.
By 2013, the power plant in full running and generated over $46m in revenue and $40m in gross profit.
By 2014, the company has accumulated over $360m in losses and around $230m in net debt. The company has several other projects. Millions of $ had been spent. Almost all went bad.
At 2015, the company go through a debt restructuring and wiped out old shareholders. It received USD $60m and converted some debt to shares. Reappointed new management. By the end of 2015, the total debt is $180m. Net debt is $120m.
By 2016, Total debt is over $170m. Net debt is around $130m.
(2) Business:
(3) Management.
Marc Murnaghan is the new CEO since 2015. Previously he was an investment banker and has experience in corporate financing. He seems did quite a good job in reducing expense etc. His payment is quite low and more by options.
(4) Debt and Credit Facility.
Phase I senior debt: $37.8m, 7.63%, Mature at 2024. It has a clause to lower interest by 1.5% if capacity reaches a goal.
Phase I sub debt: $13.8m, 6%, Mature at 2025. It has some yield enhancement which is a % of EBITDA.
Phase II senior debt: $103.6m, Mature at 2028. Interest same as Phase I senior.
Phase II sub debt: $18.9m, Mature at 2029. Interest same as Phase I sub.
(5) Insider holding, options, Insider trading info, share buyback.
(6) Employee numbers
(7) Industry comparison.
Nicaragua seems has another Geothermal plant which is called Momotombo and started in 1983 with 35MW. At 1989 another 35MW added. Due to low injection and bad maintenance, by 1999 the total capacity dropped to only 12MW. The owner ORMAT drilled 4 new wells and added a 7.5MW binary plant. Total capacity brought back to $35MW in 2003. At 2013, total capacity including the binary plant is only 25MW. For the ten years, each year 1MW capacity was lost.
(8) Major events
2. Financial data.
3. Valuation
(1) The Geothermal power generally has a low depletion rate which is only 3% to 4%. Given its size, I estimate each year around 2MW capacity will be lost. To compensate that, every 3 years a new well needs to be drilled and added 5MW to 6MW. That cost is close to $10m which is around $3.5m/year.
(2) Currently, it generates over $55m in revenue and over $48m in gross profit. SG&A is going down in last years and set at $4m currently. Interest expense is around $15m/year. Maintenance CapX is around $2m/year. Capacity compensation $3.5m/year. Currently, the company still needs to drill an additional 2 to 3 wells cost around $7.5m/well. Maybe a new binary plant which might cost $30m. The company doesn't need to pay tax until 2022.
(3)At Q2, it seems to increase its output to 59MW compare to 50MW in the previous year. This might significantly increase its revenue and profit for Q2.
(3) Using $45m EBITDA, $5m CapX, $15m interest. Its net income could be $25m. Since it is in USD. It well supports the current CAD$260m market cap.
(4) If the company increase its capacity to 70MW, it might be able to reduce the interest rate of senior debt.
4. Risk
(1) The company has a long messy history. It might the major reason that the stock is low. The new management seems to do quite a good job after the reorganization.
(2) The operation might be interrupted and power generate might decrease.
(3) The new well and binary project still need quite a lot of spending.
(4) Although depletion is low. It still needs to keep investing to maintain the same output level. Don't know $3.5m compensation CapX is sufficient.
(5) The debt is still a little high. I wish it can be reduced to below $100m level.
5. Conclusion
The company currently is much safer than before. Currently, the price is very reasonable. There is more upside if new wells and project be finished.
6.Links
Mar. 07, 2019
Year 2018 data
Price $11.0, Shares: 15.7, Cap: $172m, Warrant &options around 2m.
(1) The company acquired 3 hydro plants in Peru in a total of 33MW and expect to be operational by the end of 2019. There are other large plants in the early stage as well. The company issued 600k shares and another 900k warrant for the acquisition. Took over $40m+ debt at 0% interest valued at $24m on the book. There is a 5MW plant is running. The rest 2 plants of 28m could need $35m to complete in 2019.
(2) Full-year 2018 EBITDA around $58m. Interest expense around $17m. Dividend $10m. Paid down around $13m in debt. Total debt increased to $187m because of the Peru acquisition. Gross debt is around $207m.
(3) The company did very well in Nicaragua operation. If not for the new acquisition, it will be able to pay down debt much faster. Currently, its FCF just barely be able to cover its capital need. However, as long as the current plant is stable, it should be able to construct the new plants without much capital risk.
