The stock is down over the past year but Beacon Securities analyst Gabriel Leung remains confident in the capabilities of Kraken Robotics (Kraken Robotics Stock Quote, Chart, News TSXV:PNG), maintaining his “Buy” rating in an update to clients on Friday. Based in Newfoundland, Kraken Robotics is a marine technology company providing ultra-high resolution, software centric-sensors and underwater robotic systems. Leung’s latest analysis comes after the company reported its financial results for the fourth quarter of 2021, paired with year-end figures. “While results were below our estimates and the company’s previously issued guidance (which we believe may have been due to timing of revenue recognition and supply chain constraints), they were, nonetheless, record quarterly results for Kraken,” Leung said. Kraken’s financial results were headlined by $15 million in revenue, which represented a near tripling sequentially from the $5.1 million reported in the previous quarter, as well as being a 630 per cent year-over-year improvement. However, the result was slightly below the $17 million set forth by Beacon Securities. Meanwhile, after being negative in previous quarters, Kraken turned in positive EBITDA of $3 million in the most recent quarter to produce a 19.9 per cent margin, standing in contrast to the $681,000 loss from the previous quarter and $2.6 million loss in the same quarter of 2020. However, the number was still slightly below the Beacon Securities estimate of $4.5 million, which implied a margin of 26.5 per cent. Kraken reported a gross margin of 43.5 per cent in the quarter, which was up from the 38.5 per cent margin reported in the previous quarter, but down from the 46.6 per cent margin reported in the same quarter of 2020. Kraken’s free cash flow came in at a $3.1 million loss, with Leung particularly attributing the loss to changes to working capital being a $3.7 million drain, though he also expects operating cash flows to improve as the company continues deliveries of its large Danish Navy contract. All told, the company finished the quarter with $6.8 million in cash compared to $10.7 million in debt, with Leung noting management’s expectation of receiving progress payments on two large contracts amounting to approximately $14.4 million over the course of the year. The company also has $15 million in previously awarded non-repayable funding to draw upon from government agencies and project partners for research and development, with the company already having received $3.6 million contracts to be completed in 2022. “Despite COVID and global supply chain challenges, we delivered strong results in 2021 driven by the exceptional execution and hard-working performance of our entire team,” said Kraken CEO Karl Kenny in the company’s April 28 press release. “We advanced our growth strategy through innovation and business investments that make a real difference to our customers, and we remain committed to this strategy.” As part of the results, Kraken also introduced financial guidance for 2022, in which they set a revenue range of between $36 million and $42 million, paired with EBITDA ranging from between $5 million and $7 million. “Based on discussion with management, we believe that it has a high degree of visibility to the low end of guidance based on contracts in hand, along with high probability wins over the course of CY22,” Leung said. To that end, after Kraken wrapped up 2021 with $25.6 million in revenue for a 108.1 per cent year-over-year increase, Leung forecasts an increase to $35.7 million in revenue for 2022, marking a potential year-over-year jump of 39.5 per cent. In terms of valuation, Leung forecasts the company’s EV/Revenue multiple to drop from the reported 3.5x from 2021 to a projected 2.5x in 2022. Meanwhile, the positive fourth quarter pushed Kraken’s 2021 EBITDA into an overall positive of $2.3 million for an implied margin of nine per cent. Looking ahead to 2022, Leung’s forecast again remains toward the bottom end of management’s guidance, with the $2.8 million estimate implying a margin of 7.8 per cent. From a valuation perspective, Leung introduced an EV/EBITDA multiple of 40.1x to wrap up 2021, with a drop to 32.6x projected for 2022. “We believe the upper end of guidance will be predicated on the award of several larger mandates (within military), which are expected to materialize over the course of the year,” Leung said. “We view new contract wins within its core Kraken product business and PanGeo sub-seabed survey services division as key catalysts for the stock.” Kraken Robotics has seen its stock price creep up since the start of 2022, reporting a 9.2 per cent return in that time period. After dipping to a 2022 low of $0.33/share on February 14, Kraken began gaining momentum, eventually reaching a 2022 high of $0.48/share on March 25. With his reiterated "Buy" rating, Leung has maintained a target price of $1/share for a potential one-year return of 133 per cent.