Kraken Robotics has an upside of 173%, Beacon says

Following the company’s most recent results, Beacon Securities analyst Gabriel Leung is maintaining his bullish stance on Kraken Robotics (Kraken Robotics Stock Quote, Chart, News, Analysts, Financials TSXV:PNG).

On August 29, Kraken reported its Q2, 2023 results. The company posted Adjusted EBITDA of $3.0-million on revenue of $13.7-million, a topline that was down 4 per cent from the same period a year prior.

“With solid results in the first half of 2023, we look forward to a continued ramp in the second half of 2023 and beyond,” said CEO Greg Reid. “Our sonar and subsea power business are seeing strong growth opportunities, and with significant contracts in hand, we have been focused on adding depth across the organization and sharpening our execution as we scale. With the recent expiry of share purchase warrants, the repayment of the acquisition debt and no further contingent consideration from the PanGeo acquisition, and increases to our credit facilities, we have derisked our balance sheet and potential for share dilution. Having secured several long-term contracts and customer relationships and added more depth in areas such as engineering, project management and production, we are building future value. Our outlook, driven by industry trends in subsea security and offshore renewables, is strong. We believe our value in the market is not reflective of our significant investment to date, our unique competitive position and strong pipeline. We will continue our focus on execution as we believe we are in the early days of creating significant shareholder value.”

Leung assessed the quarter.

“Kraken reported Q2 2023 results, which included revenues and EBITDA of $13.7M and $3M (22.3% EBITDA margins). We were modeling $11M and negative $201k,” he wrote. “Product revenues of $10.5M were up 24% y/y thanks to contributions from a KATFISH delivery to a NATO Navy in Asia-Pacific, sub-sea battery work, along with continued work on previously announced large orders such as the Danish Navy and Government of Canada. Service revenues of $3.2M were down 45% y/y due to a large Acoustic Corer project last year, which did not repeat (i.e. difficult y/y comparables). Gross margins were 56.7%, which was higher than our 42% estimate due to product mix. We are modeling ~50% gross margins for CY23e. Operating cash flow was $6.3M, which was offset by capex of $2.7M, lease (principal and interest) payments of $266k and long term obligations (principal and interest) of $572k. The company ended Q2 with cash of $6.7M against total debt of $10.6M, which includes a $4.5M promissory note related to PanGeo, which was due on July 30, 2023.”

In a research update to clients September 1, Leung maintained his “Buy” rating and one-year price target of $1.20 on PNG, implying a return of 173 per cent at the time of publication.

Leung thinks Kraken will post Adjusted EBITDA of $17.0-million on revenue of $72.2-million in fiscal 2023.