Executive Summary / Key Takeaways

• Kenon Holdings Ltd. is strategically transforming into a focused power generation entity, leveraging its core assets in Israel (OPC Energy) and the U.S. (CPV) to capitalize on surging electricity demand and energy transition trends.
• The company demonstrated robust financial performance in Q2 2025, with Adjusted EBITDA growing 36% to $90 million and revenue increasing to $196 million, driven by expanded services and higher tariffs.
• Significant growth projects, including OPC's Hadera 2 (an 850 MW natural gas plant) and various solar and wind initiatives, position Kenon for substantial capacity expansion and margin improvement through 2030.
• Kenon maintains a strong liquidity position, with $470 million in unrestricted cash as of Q2 2025, and actively returns capital to shareholders through dividends and share repurchases, including a recent $250 million dividend.
• While geopolitical risks and market supply constraints in Israel present challenges, Kenon's diversified asset base, proprietary technology for operational efficiency, and strategic investments in high-demand markets underpin its long-term value proposition.

The Strategic Power Play: Kenon's Energy Evolution

Kenon Holdings Ltd. operates as an owner, developer, and operator of power generation facilities, primarily in Israel and the United States. The company's overarching strategy centers on realizing value for its shareholders by optimizing its core assets and strategically divesting non-core businesses. This approach has shaped its current focus on energy generation and supply, encompassing natural gas and renewable energy sources.

The global energy landscape is undergoing a profound transformation, marked by booming electricity demand, particularly in the U.S., driven by the proliferation of electric transportation and the exponential growth of artificial intelligence and data centers. Concurrently, supply constraints, extended power plant construction timelines, and supply-chain bottlenecks are contributing to rising electricity prices and spark spreads. Both the U.S. and Israel are recognized as significant data center hotspots, indicating sustained demand growth. In Israel, the market faces its own supply constraints and potential energy shortages, creating opportunities for well-positioned power producers.

Kenon's competitive standing in this dynamic environment is characterized by its global diversification and proprietary technology. The company's proprietary technology in power plants offers significantly higher efficiency in operations, which aids in cost leadership. This technological edge provides tangible benefits by optimizing energy output and reducing operational expenditures, thereby enhancing profitability and contributing to a stronger competitive moat. While specific quantitative metrics for its technology are not publicly detailed, the strategic intent is clear: to leverage advanced operational capabilities for superior performance and cost advantages within its generation facilities. This focus on efficiency is foundational to Kenon's strategy and competitive position.

Historically, Kenon has demonstrated a commitment to shareholder value realization. A notable example is the third-party investment in Qoros in the first quarter of 2018, which resulted in Kenon recognizing a substantial gain of $567 million. This transaction, alongside the subsequent divestment of ZIM , underscores Kenon's disciplined approach to portfolio management and capital allocation, allowing it to concentrate resources on its core power generation businesses.

Operational Strength and Financial Momentum

Kenon's financial performance in the second quarter of 2025 reflects the strength of its strategic focus. The company reported a 36% increase in Adjusted EBITDA, reaching $90 million, compared to $66 million in Q2 2024. Revenue for Q2 2025 also saw an uplift, rising to $196 million from $181 million in the prior year period. This growth was primarily fueled by increased revenue from private customers in Israel, higher sales volumes at the Hadera power plant, and expanded services in the U.S..

The company's core operating assets, OPC Energy in Israel and CPV in the U.S., are central to its revenue generation. In 2024, $625 million of Kenon's sales originated from Israel, with $126.3 million from the U.S. Notably, U.S. revenue exhibited exceptional growth, increasing by 73.16% in 2024, while Israel-derived revenue grew by 0.99% in the same year. OPC's share of profit from associated companies, net, increased by $17 million in Q2 2025, largely due to increased ownership stakes in CPV Shore and CPV Maryland in late 2024 and early 2025.
Looking at the trailing twelve months (TTM) as of September 2025, Kenon reported annual revenue of $751.30 million and a net income of $597.67 million.

The company's profitability margins are robust, with a TTM gross profit margin of 17.13%, an EBITDA margin of 30.72%, and a net profit margin of 63.80%. While the operating profit margin stood at 4.97%, the significant net profit margin reflects the impact of non-operating gains and equity earnings.

Operating cash flow for the TTM period was $265.08 million, though free cash flow was negative at -$75.59 million, indicating substantial ongoing capital expenditures for growth projects.

Kenon maintains a strong liquidity profile, with $470 million in unrestricted cash and cash equivalents and $17 million in restricted cash as of Q2 2025. The company's total outstanding consolidated indebtedness was $1,403 million. At the Kenon stand-alone level, cash was approximately $560 million as of August 2025, with no material debt. This strong cash position supports its strategic investments and shareholder return initiatives. In April 2025, Kenon distributed an interim cash dividend of approximately $250 million, or $4.80 per share, largely attributed to the divestment of ZIM (ZIM). Furthermore, the board increased its authorized share repurchase plan by $10 million, bringing the total to $70 million, with approximately 1.8 million shares repurchased for about $48 million since March 2023.

Expanding Horizons: Strategic Growth and Future Outlook

Kenon's future growth is firmly anchored in its ambitious development pipeline within OPC and CPV. Through its interest in OPC, over 60% of Kenon's current generation capacity is either under construction or in early development stages, with full completion projected by 2030. CPV also has two additional projects, one solar and one wind, with a combined installed capacity of 1.643 GW. In Israel, OPC has five planned projects, including one natural gas project with an 89 MW projected capacity and four solar projects totaling 1.431 GW.

A cornerstone of OPC's future expansion is the Hadera 2 Project, a natural gas-fired power plant with an estimated capacity of approximately 850 MW. The preliminary cost for this significant project is estimated between $1.3 billion and $1.5 billion (NIS 4.5 billion to NIS 5 billion), and the Israeli government approved the plan for Hadera 2 in August 2025. This project is expected to be a key driver of future revenue and earnings, particularly if Israeli energy shortages materialize and tariffs rise post-2026, leading to strong margin expansion. The Federal Energy Regulatory Commission (FERC) has also approved PJM Interconnection minimum and maximum ceiling prices of $177 and $329 per MW/day, respectively, for auctions scheduled between June 1, 2026, and May 31, 2028, providing a favorable pricing environment for U.S. assets.

Competitive Landscape and Risk Considerations

Kenon operates in a competitive energy market alongside major players such as NextEra Energy , Entergy , MYR Group Inc. , and Constellation Energy . Kenon's global diversification and proprietary technology, which enhances operational efficiency and supports cost leadership, are key competitive advantages. This allows Kenon to potentially achieve superior margins and offers a unique value proposition in global energy markets that more regionally focused competitors like Entergy (ETR) may lack. Its end-to-end ownership and operation model for power plants could also offer greater long-term stability compared to project-based contractors like MYR Group (MYRG).

However, Kenon's smaller scale in core segments compared to industry giants like NextEra Energy (NEE), a leader in renewable energy and utilities, could result in higher costs and potentially lower margins. The company's diversified structure, while offering resilience, might also dilute focus compared to specialized energy firms, potentially leading to slower innovation or execution in specific areas. For instance, Constellation Energy's (CEG) innovative partnerships with tech firms could give it an edge in technological integration and customer access in certain energy supply markets. Barriers to entry in the power generation industry, such as stringent regulatory approvals and high capital requirements, do, however, help defend Kenon's established market position.

The investment thesis for Kenon is not without risks. Geopolitical risk, particularly in Israel, remains high and could impact operations and market conditions. Challenges posed by regional conflicts and the temporary shutdown of natural gas reservoirs could affect energy supply and pricing. While the company's diversified asset base mitigates some of these risks, investors must consider the potential for market volatility and operational disruptions.

Conclusion

Kenon Holdings is strategically positioned to capitalize on the growing global demand for electricity, particularly through its robust power generation assets in Israel and the U.S. The company's disciplined approach to value realization, evidenced by past divestitures and current capital allocation strategies, underpins its transformation into a focused energy player. With strong Q2 2025 financial performance, a significant pipeline of growth projects, and a commitment to shareholder returns, Kenon is building a compelling investment narrative.

While geopolitical uncertainties and competitive pressures warrant careful monitoring, Kenon's proprietary technology, which drives operational efficiency and cost leadership, combined with its strategic expansion into high-growth energy markets, provides a solid foundation for future value creation. The company's ability to execute on its ambitious development plans, particularly the Hadera 2 project, and leverage favorable market dynamics in both its Israeli and U.S. operations will be critical in realizing its full potential and delivering sustained returns for investors.