When I wrote my initial investment thesis in October of 2015 for Kraken Sonar (PNG.V), I knew a few things were going to be critical to ultimately be successful with the investment. As a very early investor in Kraken, I knew that patience on my part would be key. It has been interesting to see how, since I initially invested in Kraken, it has slowly been discovered by others. However, it is still an incredibly undiscovered and under the radar company...but I suspect that will change over the remainder of 2016 for reasons I will discuss below. The other key factor to ultimate success is obviously execution of the business by management. Kraken has had some very nice "wins" over the past year that have validated their technology and I anticipate that momentum to continue.
This past week I more than doubled my position in Kraken as I feel it continues to be significantly undervalued based on where I think it's true potential is. From my vantage point, the next 6 months will determine if I will continue to hold my investment in Kraken as the stars are aligning for fantastic business execution throughout the remainder of 2016.
Here are the potential catalysts that I see for the remainder of 2016:
- Kraken is currently raising $1M via a private placement. I am told the interest in the PP has been very strong, so a fully subscribed PP, or perhaps an oversubscribed PP, would send a boost of confidence to investors that perhaps Kraken is starting to be seen as a very attractive investment opportunity by others.
- Kraken is on track for delivery of its first KATFISH product in late 2016 to Elbit. Remember, Elbit (a multi-billion dollar Israeli defense company) and Kraken announced a partnership back in February 2016 in which it would supply its KATFISH product to Elbit. I suspect that successful delivery of the first product will lead to repeat orders for more units, and at $1.5M per unit (with very handsome gross margins of 60%+) that will really move the needle for Kraken. And while the first unit will take the company 10+ months to produce (with delivery in late 2016), future units will be produced much faster, in a matter of months, as they have beefed up their production and assembly capabilities.
- The company's partnership with Square Robot should drive some significant revenue generating opportunities. Under the strategic partnership agreement announced in June of 2016 , Kraken expects to be awarded an initial contract to play a significant role in delivering sensors and major software components as part of a US$2-$3 million development program. As part of a 5-year collaboration agreement, Kraken could see an additional US$5M in revenue for manufacturing support. Kraken anticipates average selling prices to be in the range of US$400,000 - US$500,000 for the initial SRI application with a forecast of approximately 70 units over the first five years of SRI's service offering. A nice opportunity here!
- Sales of Kraken's Aquapix should start ramping up, in addition to other ancillary sonar related products.
- During the second half of 2016, the Company is aiming to enter into a contract with an international defense contractor for the development of an advanced underwater robotic drone that is code-named ThunderFish. Kraken expects the ThunderFish drone to be priced in the range of US$3 million.
- Strategic partnerships are going to be key for Kraken going forward, in my opinion. In addition to the Elbit and Square Robot partnerships, I suspect a third major partnership is in the works (the company has even hinted at this in a previous press release) and news of that could be yet another catalyst.
The above highlight some of the catalysts that I expect to see come to fruition over the next 6 months. With total revenues of $1.9M in 2015, the incremental organic growth that the company will show in 2016 should be quite significant. With a decent cash position of $600-700k and no debt, with a current PP that hopefully will bring in $1M+, the company is poised to aggressively secure and execute upon the many opportunities that are in front of them.
April 2016 Investor Desk- Click Here