Harvest Technology Group Ltd - Trading Update – on Track

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.

September MRR delivered

Harvest’s trading update confirms September MRR of $346k, at the bottom end of the expected range of $340-$380k, 34.5% higher than in June. Actual quarterly revenue was reported at $887k - a record quarterly revenue from customers. Harvest will move to report quarterly revenue in future updates based on accounting standards rather than MRR as revenue sources diversify away from licence subscriptions. Management note that sales momentum continues to build, and revenue is supported by recurring work from existing customers including contracts announced with an EU defence force, initial work for ship operator Vallianz Holdings and remote monitoring for Beach Energy. A new contract with International Rescue was announced after quarter end. Additional information will be released with the full quarterly result.

Valuation base-case at $165m or $0.28/share

No change to our valuation - which 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.