Kraken Robotics has 67 per cent upside, Beacon Securities says

After years of R&D and missionary sales, marine tech company Kraken Robotics (Kraken Robotics  Stock Quote, Chart TSXV:PNG) is now on the cusp of meaningful revenue growth, says analyst Gabriel Leung of Beacon Securities. In a coverage launch on Tuesday, Leung rates PNG a “Buy” with a $0.75 price target, representing a projected return of 67 per cent at the time of publication.

Kraken makes high resolution software-centric sensors and underwater robotic systems with principal markets of defence contractors and national defence agencies, research institutions, survey companies, search and salvage, seabed mining and oil and gas.

The company has seen validation by, among others, Defence Research and Development Canada, the US Navy’s Sea Systems Command and the UK’s Ministry of Defence. Recently, Kraken received a $2.8 million equity investment by survey and exploration company Ocean Infinity along with $12 million in orders, both of which speak to PNG’s burgeoning potential, says Leung.

“Kraken’s strong product portfolio consisting of sensors and robotic systems (and soon robotics-as-a-service), which are based on Synthetic Aperture Sonar technology (versus traditional sonar tech) has benefited from extensive R&D and have been shown to be more efficient, provide better coverage, and cheaper than competing platforms,” says Leung. “We believe the company’s strong IP represents a key competitive differentiator versus larger peers.”

Kraken’s revenue guidance for 2018 is at $7 million, double 2017’s $3.5 million, while Leung points to the huge pipeline ahead comprised of US$200-million worth of military opportunities and US$150 million of commercial.

“From a revenue perspective, growth has been relatively modest over the past few years running in the $2-$3 million range driven largely by SAS sensor sales to defence customers,” says Leung. “However, over the past 12 months, Kraken has booked ~$20 million of business (includes SAS sensors, Katfish and batteries), which should help the company to hit ~$7 million in revenues in CY18. Furthermore, based on the pipeline of opportunities, we believe the company is well positioned to continue to show positive bookings growth.”

Leung’s target stems from his 15x CY20 EV/EBITDA valuation. The analyst predicts PNG will generate revenue and EBITDA in fiscal 2019 of $10.0 million and negative $0.9 million, respectively, and revenue and EBITDA in fiscal 2020 of $23.0 million and $6.0 million, respectively.