Harvest Technology Group Limited

Company Overview: Harvest Technology Group Limited (ASX: HTG) provides offshore solutions and engineering services for subsea projects. It also engages itself to deliver network optimised remote operations and provide communication, automation, and monitoring capabilities for the energy, resources, and renewables sectors. The company is based out of Perth, Australia.

HTG Details

Implementation of Strategic Objectives Supported by Capital Raise: The Group has achieved considerable success on its strategic objectives in FY21 and has released its three-phase corporate strategic plan. Some of the key developments during the year include –

• It has established its wholly owned US subsidiary, Harvest Technology Group, Inc., during the year and appointed Andy Lowery as the US regional lead. Andy has also been appointed as President and Director of HTG Inc. and will be responsible to drive growth across the industry verticals in the US.
• The company successfully raised $7.6 million through a private placement in May 2021, at an issue price of $0.32 per share. The net proceeds from the funding have been used to support its objective of expansion in the US markets, and also ramp up resources in order to aid on innovation.

FY21 Performance Highlights:

• The company reported total revenues of $8.51 million in FY21, compared to $11.74 million in FY20. The revenues were impacted by the prevalence of the COVID-19 pandemic during the year, which led to the cancellation of projects, delay in contracts, and restrictions on travel.
• The Group reported a loss of $10.23 million in FY21, compared to a loss of $6.14 million in FY20. The losses were intensified due to an uptick in R&D expenses during the year. This was in line with the Phase 1 strategy, as it focuses on speed and scaling the number of personnel in the company.
• It ended the period with a cash position of $6.75 million as of 30 June 2021. The total debt stood at $4.11 million during the same period end, down from a level of $6.78 million as of 30 June 2020.

Decline in Debt Levels (Source: Analysis by Kalkine Group)

Acquisition of SnapSupport:

HTG has executed a formal stock purchase agreement in order to purchase SaaS-based company, SnapSupport on 15 June 2021.

• SnapSupport offers commercially viable solutions that will augment the advantages of HTG’s livestreaming capabilities.
• It has a large-scale customer base of over 900 active users and will bolster the prospects of the combined entity post-acquisition and will drive synergies.

MOU with Inmarsat Global Limited:

The company has recently announced that it has formalised an MOU with Inmarsat Global Limited to collaborate on its development of VELARIS Partner Network. The MOU entails both the companies to develop the VELARIS Partner Network through coordination of joint marketing and promotional activities.

Top 10 Shareholders: The top 10 shareholders together form around 35.17% of the total shareholding, while the top 4 constitute the maximum holding. Guilfoyle (Paul Joseph) and Kyriaco Barber Pty. Ltd.  are holding a maximum stake in the company at 6.30% and 5.50%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics:  The company reported an improvement in ROE to negative 71.9% in FY21, compared to negative 78.7% in FY20. However, it reported an increase in the cash cycle to 158.6 days in FY21, compared to 18.5 days in FY20.

Profitability Metrics and Leverage Profile (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the following risk factors:

• Impact of COVID-19: The Group’s performance had been impacted by the COVID-19 pandemic in FY21, and still the uncertainty in trading conditions still lingers on due to the COVID-19 spread.
• Technology Risk: Its line of business makes it prone to the risk of change in technological trends and updations. Hence, it has to keep itself relevant as per the industry needs and invest in its R&D programs.
• Profitability Risk: The company also is faced with the risk of profitability turnaround, after having reported a negative bottom-line for the past few years.

Outlook: The Group believes that it is now equipped with the required resources to embark on Phase 2 of its Strategic plan. It plans to diversify its revenue streams going forward and expand its presence in the US market through collaboration with its new and existing partners. Moreover, with the establishment of a US base and the acquisition of SnapSupport, the company seems to be on track with its market strategy. HTG will hold its AGM on 30 November 2021.

Stock Recommendation:  As per ASX, the stock of HTG is trading below its average 52-weeks’ levels of $0.250-$0.500. The stock of HTG gave a negative return of ~7.46% in the past one month and a positive return of ~3.33% in the past six months. Considering the current trading levels, acquisition of SnapSupport, establishment of its wholly owned US subsidiary, planned execution of its growth strategies, reduction of leverage, and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.300, as on 05 November 2021, at 11:23 AM (GMT+10), Sydney, Eastern Australia.

Technical Insights:

HTG prices broke the downward sloping trend line by upside in October 2021 on a monthly chart. Prices are now sustaining above the breakout level from the past 6 weeks. Prices recently took the support of the same downward sloping trend line that indicates bullishness in the prices. RSI (14-period) is hovering near to oversold region at ~32 on a daily chart that further indicates prices could reverse to upside in the near term. Immediate support levels are AUD 0.265 and AUD 0.250 while immediate resistance levels are AUD 0.400 and AUD 0.46.

HTG Daily Technical Chart, Data Source: REFINITIV

Note: The purple color line in the chart shows RSI (14-period)

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 on 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 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.

Disclaimer

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