Harvest Technology Group Limited

HTG Details

Recent Updates: Harvest Technology Group Limited (ASX: HTG) operates as a technology company providing real-time transfer of audio, video, and data with ultra-low bandwidth and low latency.

• On 4 February 2022, the company informed the market that Mr Marcus Machin, a director, had acquired 380,095 fully paid ordinary shares for a consideration of $0.21 per share.
• In another update, the company informed that Mr Stuart Carmichael, a director in the company, has acquired 12,141 paid ordinary shares (SBV Capital Pty Ltd) and 32,988 fully paid ordinary shares (SJ & T Carmichael Superannuation Pty Ltd) for a consideration of $0.21 per share.
• HTG announced that it has closed its previously announced retail entitlement offer and an institutional entitlement offer on a 1 for 10 shares. HTG intended to raise about $11.1 million from the issue. Along with the institutional component of the entitlement offer, the total amount raised under Offer is ~$4.07 million (before costs).

December 2021 Quarter Update:

• As part of its three-phase strategic plan, HTG completed the redelivery of the VOS Shine to Singapore, launched Opsivity^TM, and rebranded SnapSupport products. It is now progressing to Phase 2 of the strategic plan.
• The company signed a memorandum of understanding with Inmarsat. Other notable, blue-chip customer and partner base includes, Speedcast, Fugro, Inpex, Santos, Sapura Energy, TechnipFMC. The deals will aid HTG to achieve a scalable revenue model, and stable cash flow through market leading global resellers.
• At the end of the December 2021 quarter, HTG has inked a sales and licensing deal with TechnipFMC for twelve Infinity Nodestream Quad systems for use across eight vessels in its fleet for ~A$230K purchase order.
• It had garnered receipts of $4.6 million from customers in Q2FY22. But it had incurred operating cash outflows of $1.4 million led by R&D and product manufacturing and operating expenses. HTG ended the quarter with a cash balance of $5.166 million.

Cash Balance Highlight (Source: Analysis by Kalkine Group)

Key Risks: The company’s operational and financial performance could be hampered by the rising market share of peers in the industry in which it operates. HTG’s performance could be impacted by the change in technology, which could affect its way of doing business.

Outlook: HTG expects to offer several global reseller agreements for Infinity technology products and solutions in the coming quarter. The company also expects to increase revenue and adoption of the Opsivity SaaS platform in 3QFY22. Phase 2 focuses on income diversity by transitioning the business model and expanding commercial opportunities, diversifying the customer base, and developing elevated sustained Annual Recurring Revenue (ARR) levels. In particular, HTG targets the maritime industry, which is estimated to grow from a market size of US$2.6 billion in 2022 to US$3.2 billion in 2025, providing substantial sales opportunities for HTG’s Infinity technology.

Stock Recommendation: Over the last six months, the stock has corrected by ~44.7%. It is trading at par with its 52-week low price of $0.17. On a TTM basis, the stock is valued at 13.5x of EV/Sales multiple compared to the industry average of 36.8x (Electronic Equipment & Parts). This implies that the stock is undervalued at current levels. Considering the valuation on a TTM basis, decent liquidity position, geographical expansion, current trading levels, optimistic long-term outlook, fund rising plan, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $0.17, down by ~2.858% as on 7 February 2022. 

HTG Daily Technical Chart, Data Source: REFINITIV 

Tesserent Limited

TNT Details

2QFY22 and 1HFY22 Update: Tesserent Limited (ASX: TNT) provides full service, enterprise-grade cybersecurity and networking solutions for enterprise and government customers across Australia and New Zealand.

• Rise in Turnover: In 1HFY22, the company’s total turnover in the underlying business soared a whopping 62% on pcp and came in at $2 million, owing to organic growth, go-to-market strategy, and acquisition synergies. Turnover in 2QFY22 went up 51% year over year.
• Impressive Recurring Revenues: In 2QFY22, the company recorded an increase in the proportion of recurring revenue, which depicts the company’s overall turnover to 44%, compared to 42% at the end of 1QFY22.
• Higher Operating EBITDA: Operating EBITDA came in at $2.6 million for the quarter, depicting a rise of ~101% from the prior year’s corresponding quarter. Notably, 1HFY22, operating EBITDA went up a whopping 166%, indicating enhanced operating leverage through the business, reorganisation strategies, pricing, and margin recovery on certain contracts.
• Acquisition Synergies: During the quarter, the company completed all three acquisitions (Loop Secure, Claricent and Pearson). The additions are expected to bolster TNT’s Cyber 360 capabilities and contribute to its annual turnover.
• Cash Balance: In Q2FY22, the company reported positive cash flow from operations of $4.2 million. As at 31 December 2021, the company’s cash balance stood at $13.6 million.

Operating EBITDA; (Analysis by Kalkine Group)

Risk Analysis: Prevailing global uncertainties related to COVID-19 and other geopolitical tensions and stiff rivalry from competitors remains key concern. Also, adverse movements in interest rates and foreign currency exchange rates are other potential risks. 

Outlook: TNT completed a capital raise of $25 million to finance future potential acquisitions, particularly in upfront cash payment to purchase Loop Secure, Claricent and Pearson.   Further, its key strategies of strengthening its core Cyber 360 capabilities, expanding the product and service offering to its key clients, and acquiring complementary businesses are expected to drive its market share through incremental EPS growth.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of the company has been corrected by ~22.5% in the past three months. Currently, the stock is trading close to its 52-week low level of $0.15. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount as compared to its peers, considering the cybersecurity risks, foreign currency fluctuations risks, COVID-19, integration risks, etc. For the purpose of valuation, peers such as Bravura Solutions Ltd (ASX: BVS), Codan Ltd (ASX: CDA), Integrated Research Ltd (ASX: IRI) have been considered. Considering decent turnover numbers, robust product pipeline, acquisition synergy, positive outlook, capital raising initiatives, current trading levels, indicative upside in valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.155, down by ~3.126%, as of 07 February 2022.

TNT 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 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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