The coming decade in the U.S. is expected to be a period of significant demand for both new and upgraded infrastructure, particularly in the energy, telecom and renewable sectors. The increasing adoption of renewables and the emergence of new networking technologies are expected to drive the heavy investments in these markets which in turn is also creating a high degree of investor interest. Today, we are going to cover a small-cap which has a strong presence in all three critical infrastructure areas with phenomenal top-line growth backed by solid technological adoption and a robust acquisitions strategy – Orbital Energy Group, Inc. (NASDAQ:OEG).
Orbital Energy Group, Inc. operates three business segments: Electric Power, Telecommunications, and Renewables. Orbital Energy was incorporated in 1998 and is based in Houston, Texas. The Company’s transformation really began in the second half of 2019 with the appointment of industry veteran Jim O’Neil as CEO. He was previously chief operating officer, chief executive officer and president of Quanta Services, Inc. (Quanta), an infrastructure solutions provider for the electric power, oil and natural gas, telecommunications and renewable industries. Over an eight-year period (2008 – 2016) as COO and then CEO, Mr. O’Neil grew the company into a Fortune 500 enterprise with $7+ billion in annual revenue at its peak through a combination of both organic growth and strategic acquisitions. Can O’Neil and his team achieve a similar success at OEG- we think they have put the pieces together to become a multi-billion dollar leader.
Under O’Neil’s guidance, OEG embarked on a mission to reshape the Company’s business strategy through the organic creation of focused service platforms in the three previously mentioned segments combined with the completion of four complimentary and strategic acquisitions. The Company’s most recent acquisition, Front Line Power (FLP) Construction for $218M, solidified its place as a full-service infrastructure provider.
Orbital Power Inc., a subsidiary of Orbital Energy Group, is an essential provider in the power and utility industry with more than five decades of in-field experience. It is a rising star in the electrical utility industry, specializing in high-voltage transmission, substation, distribution, and storm response construction and maintenance. Orbital Power offers turnkey services such as project management, material procurement and management, quality assurance/quality control, and project closeout to meet all construction and maintenance requirements for on-time completions, safe, and dependable performance. An important factor worth highlighting is that a majority of its contracts fall under multi-year agreements in the electrical utility end markets, helping to provide some consistency and sustainability to its revenue streams.
Orbital Telecom Services has a nationwide network of locations equipped to provide on-demand support for multi-vendor OEM technology needs and outside plant construction projects. Its Gibson Technical Services division specializes in wireless, broadband, outside plant, and construction technologies, including healthcare and has a 20,000 square foot equipment- assessment laboratory, strategically situated brand warehouses, outside plant materials yards, and a training centre.
We think this segment will benefit from the massive 5G, cybersecurity, big data, artificial intelligence capital spending that is underway in the U.S. Gibson Technical Services has a track record of successfully completing 5G deployment of telecom services for multiple U.S. wireless carriers in Georgia and with increasing deployment activity across the U.S. the business has an excellent upside. Orbital Energy Group also completed over two million homes fabricated for FTTP (Fiber-To-The-Premise) networks and in response to the volume of requests, their production team has grown to over 600 people in the last two years.
Orbital Solar Services, a wholly-owned subsidiary of Orbital Energy Group, is a full-service solar assembly and installation company that offers commercial customers solar power solutions such as solar panels and solar power systems. Commercial, substation, solar farm, and public utility projects are just a few of the types of projects they work on. The company operates through a joint venture with Jingoli Power LLC, a leading service provider for complex power production and power delivery construction projects. The joint venture signed a contract with for an Alabama project with Lightsource bp, a prominent global utility-scale solar and storage developer and operator. Construction has already started on this 130MWdc/100MWac solar farm in Alabama which is expected to be completed in the second half of 2022. The project will involve the installation of 350,000 solar panels across 800 acres of land, enough to power 20,000 homes for a year. This is the second project awarded to Orbital Solar by Lightsource bp. Orbital Solar has a proven track record of completing over 40 solar projects totalling over 600 megawatts, further testimony to the strength of its in-house engineering capabilities and supply chain relationships. Overall, we believe this project is evidence that Jingoli Power’s collaboration with Orbital Energy is well-positioned to meet the increasing demand for reliable and competitively priced solar generation.
Orbital Energy has been a volatile stock but we clearly see from the above chart that its trajectory has reversed. The reason for the reversal could be that Orbital Energy Group’s fourth-quarter results showed a significant improvement in its financial performance as the company’s Q4 21 revenue of $41 million was up significantly as compared to $24.8 million reported in the corresponding quarter of the previous year. Orbital Power’s organic growth and the acquisition of Front Line Power in November 2021 accounted for the majority of the top-line improvement and it is definitely a big step in the right direction. Perhaps the most notable achievement of the year end 2021 financial report was the staggering $523.7 million in backlog across various lines of business, which grew by 28% quarter-over-quarter and 1000% year-over-year. This backlog growth should correlate to substantial top-line growth in 2022, assuming projects stay on track with solid execution by OEG. Looking at the Company’s 2022 guidance, we can see how this backlog translates into a meaningful growth opportunity for the company. For the full year 2022, consolidated revenue is expected to be in range of $375 million to $425 million, and adjusted EBITDA in the range of $38 million to $43 million. This reflects year-over-year revenue growth of 382% and an improvement of $67.5 million in adjusted EBITDA for the full year 2022 compared to 2021 from the midpoint of its guidance. The company stated the revenue growth and improvement in adjusted EBITDA is expected to be led by its Renewables segment and supported by its two 100-megawatt-plus utility-scale solar programs under construction. In addition, OEG believes it will see strong double-digit organic growth in its Electric Power and Telecommunications segments, largely due to projects under contract and unprecedented demand for its services in these segments.
On the valuation front, Orbital Energy is trading at a forward EV/ Revenue multiple of 1.26 which is significantly lower than its peer group so there is an opportunity for triple-digit growth merely through multiple expansion. Overall, we are confident about Orbital Energy’s future progress and we believe that the stock could be an excellent investment opportunity for small-cap investors.