Harvest Technology Group Ltd.

HTG Details

Harvest Technology Group Ltd (ASX: HTG) operates as a technology company providing real-time transfer of audio, video, and data with ultra-low bandwidth and low latency. It provides automation, communication and monitoring services catered to the energy, resources, and renewable industries. HTG was listed in ASX on May 12, 2016.

Significant Business Developments:

• December 21, 2021: HTG forged a sales and licensing agreement with TechnipFMC for twelve Infinity Nodestream Quad systems for use in HTGs’ eight vessels for total consideration of $230k.
• December 13, 2021: HTG is conducting a retail entitlement offer and an institutional entitlement offer on a 1 for 10 shares to be offered at A$0.21 per new share. HTG intended to raise about $11.1 million from the issue. It had received commitments from major shareholders for the minimum proceeds of $3.0 million.
• Effective from December 20, 2021, shares of HTG has been removed from the S&P/ ASX All Technology Index.

Q1FY22 Trading Update:

• As part of its three-phase strategic plan, HTG completed the redelivery of the VOS Shine to Singapore on 4 October 2021 and launched Opsivity on October 6, 2021. It is now progressing to Phase 2 of the strategic plan.
• It had finalised a 7-year lease agreement for its innovation hub at Technology Park in Bentley, WA. This marks as an important milestone in ramping up the capacity. The facility aids in software, hardware development, testing and collaboration.
• In July 2021, HTG had appointed Mr. Stuart Carmichael as an Independent Non-Executive Director.
• The company is currently in the design phase for its next-gen Nodestream hardware. It is expected to receive compliance by Q1 of 2022 and followed by the official launch. The proof-of-concept study for integration of Nodestream and WebEx by the CISCO system has begun during September 2021. The first phase of the project is to be completed in two months with an aim to increase WebEx’s connectivity options.
• It had garnered receipts of $4.07 million from customers in Q1FY22. But it had incurred operating cash outflows of $1.52 million led by R&D and product manufacturing and operating expenses. HTG ended the quarter with a cash balance of ~$4 million.

Cash Balance Trend (Source: Analysis by Kalkine Group)

Key Risks: HTG has relied upon suppliers for sourcing IT components. Shortage of semiconductor chipset may delay the deliverables and may dampen the profit margin. The technology business is highly competitive, and HTG lacks scalability and operating tenure to offer strong negotiations to suppliers and pass-on price rise to customers. Cyber-related vulnerabilities and high customer churns are inherent risks.

Outlook: With the three-phase strategic plan and substantial product under pipeline, the management is optimistic to grow revenues through 2022 and beyond. In the recent update, the company’s Infinity technology is found to minimize data streaming requirements by over three times, providing feasibility to seamlessly connect with CISCO’s WebEx platform. The company’s Opsivity is expected to reach the oil and gas, utilities, transport and logistics sector in the US market, and the company is chalking marketing plan to reach in 2022.   

Stock Recommendation: Over the last six months, the stock has corrected by ~33.85%. It is trading lower than the average of the 52-week low price of $0.195 and the 52-week high price of $0.496. On a TTM basis, the stock is valued at 15.9x of EV/Sales multiple in comparison to the industry average of 32.7x (Electronic Equipment & Parts). This implies that the stock is undervalued at current levels. Considering the three-phase strategic plan, benefits over Cisco partnership, the launch of Opsivity in the US market, fund rising plan, valuation on a TTM basis, and key associated business risks, we recommend a “Speculative Buy” rating on the stock at the closing market price of $0.210, down by ~2.326% as on 29 December 2021.  

HTG Daily Technical Chart, Data Source: REFINITIV

Adslot Ltd.

ADS Details

Adslot Ltd. (ASX: ADS) operates a media trading platform. It provides web development, hosting, marketing, advertising, and automation services with operations in North America, Europe, and the Asia Pacific. ADS was listed in ASX on December 17, 1987.

Key Takeaways in the Recent Agreement:

• On December 23, 2021, ADS executed a Master Service Agreement (MSA) with You & Mr Jones Media to use the Adslot Media platform and provide an opportunity to publish the catalogue in the US market. Trading is expected to kick in in Q1 of 2022.
• ADS received commercial agreements with 7 out of 8 target agency holding companies and is expected to generate trading over the coming quarters.
• The contract is open-ended and can be terminated with less than 60 days’ notice.

Q1FY22 Trading Update:

• ADS’ media business posted a TTV growth of 14% to reach $5.63 million over the prior year.
• In terms of volume, ADS enabled 570 trades during the quarter. This represents a growth of 14% over the PcP.
• It had launched GroupM UK partner marketplace during the period.
• Besides, the company launched Health, Wellness, and Lifestyle marketplace launched for Kinesso. It is expecting phase 1 to commence by December 2021 quarter.
• ADS launched marketplace for its new partner, Flowershop Media.
• Its Symphony platform witnessed an annualized media value of $7.16 billion in Q1FY22, an increase of 13% over the prior year.
• Trading commenced for S4 Capital following the execution of MSA.
• It had added a handful number of premium publishers for its media marketplace. Like, Evolve Media, Clutch Points, Urban List.
• ADS realised cash receipts of $3.59 million from customers in Q1FY22, an increase of 8% over the prior year. Cash outflows from operating activities increased to reach $0.98 million.
• It had closed the quarter with a cash balance of $5.15 million as of September 30, 2021, a decline from $6.8 million posted in the preceding quarter.

Cash Balance Trend (Source: Analysis by Kalkine Group)

Key Risks:  The media business of ADS is exposed to patent infringement risk. High customer churns, and fierce competition may affect top-line growth. The company’s wide operations are exposed to volatile forex risks, which may affect revenue realization and profit.    

Outlook: ADS experienced a strong pull in its media platform in the last four months to September 2021 quarter period. It had witnessed offtake from large buyers in the partner marketplace. It had executed first trades in several new platforms during the period that received positive feedback. It is expecting TTV to manifest growth aided by scaling of marketplace for which activation occurred in the prior quarter.

Stock Recommendation: Over the last six months, the stock has corrected by ~17.86%. ADS just recovered from its 52-week low price of A$0.022. On a TTM basis, the stock has been valued at 2.6x using the Price/Book Value multiple as compared to the industry median of 9.0x (Software & IT Services). This signifies that the stock is undervalued at current levels. Considering the execution of an agreement with You & Mr Jones Media, an uptick in TTV in Q1FY22, the launch of various products in partners marketplace, valuation on a TTM basis, and key associated business risks, we recommend a “Speculative Buy” rating on the stock at the closing market price of $0.023 as on 29 December 2021.

ADS Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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