Kraken Robotics is a buy, says Beacon Securities

It’s been a strong, profitable start to 2020 for Kraken Robotics (Kraken Robotics Stock Quote, Chart, News TSXV:PNG), says Beacon Securities analyst Gabriel Leung, who reviewed Kraken’s first quarter results in an update to clients on Monday. Leung said the company’s pipeline of opportunities should make PNG an attractive name to own over the next year.

St. John’s, Newfoundland’s Kraken is a marine technology company supplying sensors and underwater robotic systems for military and commercial uses. As detailed in its quarterly report on Monday, Kraken hit $6.4 million in revenue for its first quarter ended March 31, 2020, up from $1.4 million a year earlier, and adjusted EBITDA of $1.3 million compared to a loss of $0.3 million a year earlier.

CEO Karl Kenny called the quarter well-balanced, with input from the delivery of the company’s second Katfish sonar system to US defence company ThayerMahan, delivery of subsea batteries to a military customer as well as services to military and offshore energy companies.

At the same time, management noted that while currently not experiencing major impacts from the COVID-19 crisis, there could be impacts on Kraken’s supply chain, customers and operations which may affect contracts going forward.

“I am very proud of our team which has been executing extremely well in a challenging operating environment,” said Kenny, in a press release. “We have many high value projects we are pursuing which will continue to drive growth and value for shareholders.”

Looking at the quarter’s results, Leung said the $6.4-million top line was equal to his $6.3-million forecast while the $1.3-million in EBITDA was better than his $772,000 estimate. The analyst noted that gross margins were up to 45.7 per cent versus 43 per cent a year earlier but down from 51.4 per cent for the previous quarter.

Leung noted Kraken’s end-of-quarter cash of $2.1 million against debt of $419,000 and remarked that while management declined to give guidance, the upcoming Q2 is likely to be supported by previously announced contracts, with Leung forecasting revenue around $4.5 million.

“As we look into H2 2020, we believe there remains a large pipeline of opportunities, which could drive significant growth in Q4 2020 and 2021 including: additional navy wins (we understand Kraken is in the midst of finalizing another mid-sized contract); additional battery orders from Ocean Infinity, along with Katfish orders for its new Armada initiative; additional Katfish orders from maritime technology company ThayerMahan (recall the CEO of ThayerMahan Vice Admiral Michael J. Connor is also on the Board of Kraken); and the finalization of previously announced contracts,” Leung wrote.

With the update, Leung has reiterated his “Buy” rating and $1.35 per share target, which at press time represented a projected 12-month return of 125 per cent.

Looking ahead, Leung thinks Kraken will generate fiscal 2020 revenue and EBITDA of $20.9 million and
$2.6 million, respectively, and fiscal 2021 revenue and EBITDA of $40.0 million and $8.4 million, respectively.

Kraken’s share price rose by over seven per cent in trading on Monday, with the stock now sitting at even year-to-date.