A case for investing in Harvest Technology plc

This pandemic has accelerated the shift towards a more digital world and has indeed sped up the demand for IT solutions across the globe. Undoubtedly, technology oriented companies have performed particularly well throughout the pandemic, with many experiencing unbudgeted revenue streams over the past couple of months.

As per recent publication of Harvest’s FY20 results, the Group reported an increase in revenue of circa 20% over FY19, as well as an overall improvement in profit before tax of 44% over IPO expectations. Moreover, also through its latest financial results, Harvest, reiterated its FY21 projections provided to investors last December, whereby it had revised upwards its IPO expectations.

As per guidance provided by management, this strong performance was primarily driven by the commencement of the Group’s Mauritius project, increased proliferation of products and an increase in demand for online payments particularly since the onset of COVID-19.

Additionally, management further noted that the Group’s international expansion strategy is also progressing well. Throughout 2020, Harvest ramped up their efforts in Greece, whereby they have already engaged with several banks as well as a number of retailers. Management further hinted that other possible destinations where the Group might possibly stat rolling out its services, include neighbouring countries Cyprus and Romania. Amongst other milestones, during 2020, Harvest has engaged with additional Tier 1 merchants in the gaming space in Colombia.

Harvest operates within a dynamic and lucrative industry, whereby we believe that the demand for contactless payments and other IT related services, are expected to continue surging once the pandemic situation edges closer to normality.

Despite the Group reporting strong FY20 results, the Group still felt the burden brought about by the pandemic. To this extent, management reported that the pandemic has delayed the Group’s ability to grow its international business as originally planned.

On a positive note however, although when compared to expectations, total FY20 revenues were below those expected, Harvest still managed to reduce its operating expenditure (as a % of revenue), which has ultimately boosted the Group’s net income.

Notwithstanding, the current unprecedented situation, the Group further proposed a final net dividend of €2c/ share, aggregating Harvest’s total net dividend for 2020 to €6c/ share. More specifically, while it is worth appreciating the fact that such dividend distribution represents a pay-out which is in excess of IPO expectations, we deem the Group’s current net dividend yield of 4.2% as attractive.

Moreover, through its resilient business model, in addition to possibly new business generation, Harvest may possibly be positioned in the foreseeable future not only to maintain the current dividend, but also improve it going forward.

In conclusion, we reiterate our stance that the Harvest shares provide investors with an attractive entry point into a company that offers exposure to the technology sector in Malta, and which is well-positioned for further expansion in other countries and regions.

As witnessed through the Group’s latest results, we further believe that Harvest, being a local technology oriented company, is well positioned within its industry to continue building on its growth trajectory and deliver on declared expectations.

Disclaimer: This article was issued by Andrew Fenech, Research Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.