RAAS Flash Comment on EU Contract27 JanuaryHarvest Technology...

RAAS Flash Comment on EU Contract
27 January

Harvest Technology Group Ltd

EU Defence Force contract likely to grow

Harvest issued a trading update on Dec-15 highlighting strong revenue from customers with expected Q2 revenue in the range $950k to $1.05m. The company had previously announced its first contract with a European Union Defence Force in September 2022.

Harvest has now reported a highly successful outcome to the field trial of the Nodestream system and has entered the next phase of discussions. The customer has previously indicated a successful outcome would see a wider roll-out and expansion of the technology within the customer’s network and asset base. This will build on the initial US$60k two-year trial. Harvest is currently assembling the staff and resources necessary to fulfil further orders from this customer. The EMEA region is showing strong signs of growing demand.

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 FY23 with results from Q3, Q4 and outlook supportive. Recent cost reductions will likely shorten the period until cash breakeven is attained. We have not included a revenue increase from the EU contract in our forecasts yet.