Harvest Technology Group Limited - Sales Pipeline Filling

Business model

HTG offers products and solutions which enable real-time monitoring of remote locations, real-time feedback for field technicians, and secure video conferencing. HTG has two trademarked product platforms, Infinity Nodestream and Remote Inspection System (RiS). The company is on the verge of large-scale roll-out of the Infinity Nodestream secure video transmission product suite through reseller agreements with the major maritime satellite communications operators. It has also launched its own Remote Inspection System (RiS) and a US business focused on enabling remote field technician support via real-time video over low-bandwidth networks and satellite. The company has a Perth headquarters and has expanded over the past 12 months, establishing sales offices in the US and UK/EMEA regions. HTG is currently focused on converting a strong sales pipeline into customer wins.

Q1 FY23 shows continued growth in revenue

HTG reported continued growth (+34%) in recurring revenue and an +54% increase in booked revenue quarter-on-quarter to a record $0.887m. Year-on-year revenue growth was 67%. Q1 R&D expense was flat with other costs lower demonstrating increased attention on costs. Net operating cash outflow was unchanged from negative $2.19m in Q1 with $2.2m cash at bank and $1.95m in committed placement proceeds and R&D rebates. Management remains cautiously optimistic of continued growth in the sales pipeline despite challenging economic conditions. Harvest’s product set is becoming more relevant with geo-political tensions and cyber-attacks highlighting the need for secure communications.

Valuation base case unchanged at $167m or $0.28/share

Our valuation is based on the discounted cashflow methodology using a Beta of 1.47 and risk-free rate of 3.5%. We have modelled three cases differentiated by customer conversion rate, cost of hardware manufacture and licence fee received. Our downside case values HTG at $123m, while we can estimate upside to $347m. The crucial period to achieve sufficient momentum in sales to justify these valuations is in CY22 with results from Q3, Q4 and outlook supportive.