Kraken Robotics has an upside of 114 per cent, says Beacon Securities

Kraken Robotics (Kraken Robotics Stock Quote, Chart, News TSXV:PNG) has had an up and down year so far but there should be better times ahead, according to Beacon Securities analyst Gabriel Leung who delivered an update to clients on the company on Monday.

Makers of marine tech including ultra-high resolution, software-centric sensors and underwater robotics, Newfoundland’s Kraken Robotics announced on Monday the closing of a previously announced bought deal financing involving 15.5 million common shares sold at a price of $0.67 per for gross proceeds of about $10.4 million.

Management said net proceeds from the deal will go towards accelerating its recurring revenue model, towards leasehold improvements, capex, parts and inventory, future acquisitions and general corporate purposes.

Leung estimated that post-financing, Kraken should have about $12.9 million in cash against $475,000 in debt, with shares outstanding at about 165 million. The analyst noted that over the near term, Kraken should also be receiving deposits from two recent equipment contracts with the Royal Danish Navy and the Polish Navy for a total of about $10 million, thus taking PNG’s cash balance to over $20 million.

Leung said the funds will come in handy in the company’s buildout.

“Aside from working capital and operational use, we believe the company could potentially use its large war chest to accelerate the growth of some of its newer strategic initiatives. Specifically, we believe the company could leverage its cash to accelerate the growth of its Robotics-as-a-Service (“RaaS”) platform both organically and via M&A,” Leung said.

“Recall that with RaaS, Kraken will be able to offer underwater robotic solutions to met the seabed survey needs of customers, thereby reducing the significant cost of owning and maintaining these assets,” Leung said.

Leung sees potential catalysts in RaaS news flow over the near term and additional battery contracts from key customer Ocean Infinity, which could come around the company’s Q4 timeframe.

“We are also expecting significant Katfish orders from Ocean Infinity related to its Armada initiatives, although this could be delayed due to travel restrictions related to COVID,” Leung said. “New navy wins, additional battery/sensor orders and new Katfish orders from existing customer ThayerMahan could also give the backlog a big boost later this year.”

With the update, Leung reiterated his “Buy” rating and $1.35 per share target price, which at press time represented a projected one-year return of 114 per cent.

On the numbers, Leung estimates Kraken to generate fiscal 2020 revenue and EBITDA of $18.4 million and $2.9 million, respectively, and fiscal 2021 revenue and EBITDA of $40.0 million and $8.4 million, respectively.

Kraken announced the Danish Navy and Polish Navy contracts in early September, with the company supplying mine-hunting sonar equipment to the Royal Danish Navy in a $36-million contract and another mine-hunting systems contract for the Polish Navy
featuring the company’s KATFISH technology to be delivered in the second half of 2021.

On the Polish Navy contract, president and CEO Karl Kenny said specifics of the contract could not be disclosed due to confidentiality reasons. “Kraken is honoured to be working with such a strong NATO ally,” said Kenny in a press release on September 8.

“Should the Polish Navy be successful in exporting its new KORMORAN II MCMVs to other countries, we could see additional KATFISH and ALARS sales opportunities in these international markets.”

Below: Kraken Robotics at the Cantech Investment Conference