Kraken Robotics: Riding the waves

Business Overview

Kraken Robotics Inc. (TSX:PNG) is market leading provider of products and services associated with advanced sonar and optical sensors, underwater batteries, and robotic systems for unmanned underwater vehicles (UUVs).

Applied in industries, such as oil and gas, defense, ocean science, and renewable energy, Kraken Robotics offers a range of products, broken down into four segments:

Source: Company Website

In addition to products, Kraken offers a range of services tailored for commercial and defense markets, including:

Source: Company Website

Why I like Kraken Robotics

Financial Performance

Kraken has shown significant revenue growth over recent years, demonstrating the market demand and applications for the technological advantages of Kraken’s products and services.

Source: Google Finance

Increasing Margins

In addition to growing revenue and profits, Kraken has shown significant improvement in operational efficiencies, and the result reflects in its net income margin and return on equity.

Source: Jika Widgets

Additional items for consideration

Product Demand and Positive Outlook: Due to the significant growth in orders for Kraken’s portfolio, management expects full year 2024 revenue and EBITDA to grow by 29-44% and 20-70% respectively.
World-class technology: Kraken Robotics has established itself as a leading innovator in marine technology, particularly in the field of Synthetic Aperture Sonar (SAS) and underwater imaging systems.
Competitive Pricing Strategy: Offer high-quality systems at a much lower price point than traditional providers, making them more accessible to a wider range of clients. E.g AquaPix product was the world's first SAS priced under $150,000.
Global Strategic Presence: The company has established strong relationships with defence departments in Denmark, U.S, Australia, Poland, Asia-Pacific region, and various NATO naval forces.
Increased defence spending: As a result of heightened geopolitical tensions e.g Russian-Ukraine, Israel Palestine, NATO defence spending increased by 11% in 2024, compared to 3% in 2023.
Government focus on security of CUI: Increasing focus on the surveillance and security of critical underwater infrastructure (CUI) i.e subsea fiber optic cables, pipelines, and power cables.
Unmanned Systems: Rise in unmanned defence systems is estimated to grow from $22.07 billion in 2024 to $41.26 billion by 2029, at a CAGR of 13.33%.
Commercial Market Growth: The worldwide capacity for offshore wind energy in 2024 increased by 24% growth compared to the prior year, driving demand for Kraken's sub-seabed imaging technologies.

Risks

When assessing risks, it’s important to note UUV and AUV markets are highly competitive and constantly evolving, particularly given the rise in AI and Machine Learning. As a result, innovation and integration of new technologies is crucial to Kraken's ability to remain competitive and if it fails to continually evolve, then its growth outlook could suffer.

Another risk factor to consider is that Kraken relies heavily on major deals from defense and commercial clients. The company’s financial stability and potential for future earnings growth could be compromised if these contracts are delayed or canceled. Looking at market dynamics, defence and energy sectors are two of the most volatile sectors as we’ve seen with Russia’s invasion of Ukraine and the Israel- Palestine conflict. Changes in NATO policies, geopolitical landscapes, government budgets, are factors that could have a very material effect on the firm’s earnings.

Conclusions

With +100% growth YTD in stock price, Kraken appears to have benefited from the surge in unmanned vehicle demands reflected in the growing backlog. Further supporting the backlog is a diverse portfolio of market leading solutions and a historic trend for delivering growing profits year on year. It will certainly be interesting to see if Kraken can continue to extend their track record moving forward into 2024 and the years following.