Harvest Technology Group Ltd - Strong Growth in Cash Receipts, New Target for Sept MRR

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648 Views03 Aug 2022 08:00

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SUMMARY

Harvest Technology Group Ltd

Strong growth in cash receipts, new target for Sept MRR

Harvest Technology Group Limited (ASX:HTG) licenses its proprietary video compression and encryption technology for low-bandwidth, high-latency applications needing secure real-time streaming video and audio communication. The company delivers products and solutions for video, audio and data transfer from anywhere, via satellite or terrestrial networks regardless of congestion or quality. HTG’s products and solutions enables real-time monitoring of remote locations, real-time feedback for field technicians, and secure video and audio conferencing. HTG reported quarterly cash receipts of $1.001m, up 32% on the previous corresponding quarter (pcp) and 55% ahead of Q3 FY22. Q4 is seasonally a weaker quarter than the first two quarters of the year. Monthly recurring revenues (MRR) exceeded $0.257m in the June quarter, up from $0.212m in the March quarter and the company has forecast MRR of $0.34-0.38m in the September quarter. Annual recurring revenues at June were in excess of $3.0m. HTG forecasted its total monthly gross operating overheads would be $0.825m in FY23. By our estimates, this puts the company on a path to be operating cashflow breakeven in FY23 and into operating profitability by early FY24. Our forecasts remain unchanged following the release of the Q4 result and our base case valuation remains steady at $0.28/share.

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 product platforms, Infinity NodestreamTM and Remote Inspection System (RiSTM). The company is on the verge of large-scale roll-out of the Infinity NodestreamTM secure video transmission product suite through reseller agreements with the major maritime satellite communications operators. It has also launched its own Remote Inspection System (RiSTM) and a US business focused on enabling remote field technician support via real-time video over low-bandwidth networks and satellite. HTG licenses its hardware and software solutions to customers. 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 reseller agreements with Speedcast and Marlink and partner leads with Inmarsat, the world’s largest maritime satellite service providers, into actual licensed customers with a target of 1,000 licences by end-CY22.

Q4 shows continued growth in MRR over Q3

HTG reported continued growth (+16%) in software and hardware recurring revenues and an +83% increase in booked revenues quarter-on-quarter (qoq). Q4 R&D expense rose slightly, however, other costs were lower with increased attention to cost discipline noted by management. Net operating cash outflow was reduced from $3.65m in Q3 to $2.19m with $4.5m cash at bank and $1m in committed placement proceeds. Management forecasts 32% growth in Monthly Recurring Revenues (MRR) in FY23 Q1 with continued control of costs. The company is targeting 1,000 Nodestream licences by end December 2022 from less than 100 at the end of March.

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

Our valuation is based on a DCF using a Beta of 1.47 and risk-free rate of 3.5%. We have modelled three cases differentiated by customer conversion rates, cost of hardware manufacture and licence fees 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.

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