Harvest Technology Group Ltd - Strong Strategic Focus and $9.8m in Additional Capital
Harvest Technology Group Ltd
Strong strategic focus and $9.8m in additional capital
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. We reported on the HTG Q4 in early August 22. The detailed annual report highlights the milestones achieved in FY22 including a successful capital raising in each half year, closing the year with $4.5m in cash and additional commitments of a further $1m from directors. Harvest discontinued vessel operations during the year to focus on technology solutions for remote operations. The company invested heavily in R&D in FY22 and is now focused on capitalising on that investment through distribution and reseller agreements signed with Inmarsat, Speedcast, Marlink and others. HTG also expects an R&D tax refund of circa $0.75m from the ATO for the FY22 tax year. We have updated our forecasts with minor changes to estimates and valuation versus our previous note. Strong sales in the current half are key to validating our estimates and the company has kicked the half off well with a contract, initially worth US$0.06m with the defence force of a European Union member. This is the first contract with a European defence force and validates the Nodestream technology for other customers.
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. 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.
Investing in capacity to drive FY23 revenue
Despite a decline in revenue due to discontinued operations Harvest has increased revenue from remote communications technologies to $2.2m. First half revenue was muted by COVID-related travel restrictions, however, growth accelerated in the second half. Discontinued vessel operations reported a loss of $0.7m, reduced from a loss of $3.4m in FY21. Along with a range of business achievements noted previously, HTG moved into new premises in Perth. The group invested $0.96m in R&D versus $0.28m in FY21, and increased people and capability in the operation and sales teams with staff costs rising to $3.7m from $1.1m in FY21.
Valuation base-case at $165m 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 $122m, while we can estimate upside to $345m. 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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- Harvest Technology Group Ltd - Strong Strategic Focus and $9.8m in Additional Capital13 Sep 2022