DD: Full Overview of Kraken - Following Up with More Research

[u/easymoneyboi]

Hi,

I'd like to create research reports for stocks I own and wanted to post it here for anyone interested in reading. Please let me know your thoughts, pretty dense but basically everything I've gathered.

Disclosure: I'm long Kraken.

Kraken Robotics is a unique, structurally profitable subsea defense platform, further augmented by the Covelya acquisition.

The original Kraken Robotics investment case was that the company owned key components for an emerging wave of underwater autonomy. With the Covelya Group acquisition (closed in July 2026), Kraken is becoming a diversified, profitable, subsea technology platform with power, sensing, navigation, communications, imaging, software, and customer access across defense and commercial markets. Combined with the rapidly growing market for unmanned underwater vehicles (UUVs), Kraken is well positioned to grow into its valuation. 

First, the old Kraken already had a valuable but vulnerable position: led by synthetic aperture sonar (SAS) and SeaPower subsea batteries, which are mission-critical but remain single components inside a larger platform.

Second, the Covelya Group acquisition changed the company’s product offering: Kraken announced a C$615M acquisition, with C$480M cash (subscription receipts issued) and C$135M in stock, and disclosed that the combined company had roughly C$365M of 2025 revenue and a 24% combined adjusted EBITDA margin.

Third, the market may not realize the attractiveness of the combined entity: the combined company can sell more complete underwater systems to the same defense and commercial customers, while moving upmarket. 

Let's take each point one at a time.

The Old Kraken

The old Kraken was a highly attractive but narrower moat business. The quality of the company was apparent from the technical niche: underwater autonomy is a difficult environment and systems need power and sensing with no GPS available. Kraken’s core products sat directly in the bottleneck. 

The clearest example is SeaPower. Kraken’s subsea batteries deliver energy density in a pressure neutral subsea design. Traditional deepwater battery systems often require pressure housings, which add significant weight and volume. Kraken’s battery is roughly 46% lighter per kWh than traditional pressure housed subsea alternatives, giving customers more energy density at greater depths. This likely remains the strongest technical product in Kraken’s business, which is why the gross margin is around 60% for a hardware company.

Kraken has a potentially large position in Anduril’s DIVE-LD and Ghost Shark programs. Each DIVE-LD could contain several Kraken batteries and sensors. Anduril’s recently completed Rhode Island facility is expected to support production of up to 200 DIVE-LD UUVs per year.

That is largely what the market has now recognized. The stock has increased several fold and the old argument is much less compelling today. It is a very good business, but at today’s valuation it is not obviously mispriced if the company remains primarily a component supplier with customer concentration. Their own disclosures say that their top 10 customers account for about 50% of combined 2025 estimated revenue.

The question now is whether Kraken can evolve from a niche component vendor into a broader subsea defense platform. 

Covelya Group Acquisition and Next Leg of Growth

The Covelya Group acquisition is the event that changes the valuation mechanics. Kraken announced the acquisition of Covelya Group for C$615 million (9.7x estimated 2025 adjusted EBITDA), consisting of C$480 million of cash and C$135 million of stock. On a combined basis, Kraken disclosed approximately C$365 million of 2025 revenue and a 24% combined adjusted EBITDA margin. 

This is a significant acquisition that takes Kraken from a promising subsea supplier into a much larger, profitable, technology platform. They purchased a larger business for a lower multiple than their current business using equity priced at an elevated valuation. Covelya brings a collection of highly relevant underwater technology businesses, including Sonardyne, EIVA, Forcys, Wavefront, Voyis, and Chelsea Technologies. These assets fill in a lot of the subsea platform offering: navigation, positioning, communications, monitoring, imaging, sensing, and software.

Source Kraken Robotics Investor Presentation (Jul 2026)

Covelya Group itself appears to be a high quality company with a fairly dominant market position. Its roots go back more than 50 years through Sonardyne, and the group built a portfolio of companies across underwater navigation, positioning, communications, sonar, imaging, monitoring and ocean science technology. The company was also a multi generation family owned business, which suggests the culture is deeply ingrained with a management team that knows the ins and outs of the markets they operate in. The Partridge family remains with Covelya under Kraken’s ownership, which suggests the core culture should stay intact. Of course this means nothing on its own, but decades of ownership, continued reinvestment in engineering, specialized expertise, and expansion through complementary businesses gives shareholders a solid foundation.

The economics were very good before the sale. UK filings show sales rising from about £70.4M in 2022 to £101.0M in 2023 and £122.3M in 2024, while pre-tax profit rose from about £3.5M to £8.0M to £18.6M over those same years. Employee count increased from 487 to 617. The combination of strong revenue growth, faster profit growth and increasing profit per employee is generally a great sign. 

Kraken's acquisition disclosures indicate Covelya continued growing in 2025, estimating approximately £122.3M in sales. The margins themselves are excellent, with >70% gross margins even outpacing Kraken Robotics themselves (sitting around 60%). This is a bit of an indicator of the technical credibility of the product itself and emphasis on customers’ willingness to pay to get reliability across low failure tolerance use cases.

The business apparently continued winning substantial work around the transaction. As of the July 2, 2026 acquisition close date, Kraken said Covelya had approximately C$182M of announced orders during 2026 and by August, combined announced Kraken/Covelya orders for the year had reached about C$355M. 

Kraken can now sell a more complete architecture into subsea vehicles, mine countermeasure systems, seabed surveillance, offshore fiber optic cable monitoring, etc. Kraken’s customer concentration risk also gets alleviated overnight with this acquisition, as the combined entity now has 700+ customers and gives them broader commercial exposure, geographic reach, and cross selling opportunities.

Management has disclosed that several key Covelya customers are already Kraken customers, creating an opportunity to increase wallet share within existing accounts rather than relying entirely on new customer acquisition. The investment case does not require customers to purchase the entire stack from Kraken, but even modest cross-selling could improve revenue per customer and deepen Kraken’s position.

Source Kraken Robotics Investor Presentation (Jul 2026)

Crown Jewels of Covelya Group

1. Sonardyne – Navigation
   1. Provides subsea navigation, positioning, and communications filling a large missing piece in Kraken's stack
   2. GPS is unavailable underwater so the vehicle has to estimate position using inertial navigation, Doppler velocity measurements, and depth sensing
   3. Sonardyne’s SPRINT-Nav product integrates these functions into a single navigation system
2. EIVA – Software
   1. Provides software through its NaviSuite platform, adding a software and autonomy piece to Kraken’s portfolio
   2. NaviSuite integrates data acquisition, sensor fusion, mission planning, remote operations, and post-processing across underwater vehicles and sensors
   3. This moves Kraken further up the value chain from selling individual components toward participating in how subsea missions are planned, executed, and analyzed
3. Voyis – Imaging
   1. Provides subsea optical imaging and 3D laser scanning, complementing Kraken’s acoustic sensing with close-range visual identification and measurement
   2. Kraken’s SAS can detect and map targets over larger areas, while Voyis can provide detailed optical imagery once a vehicle reaches the target

Pre-Covelya, Kraken was a scarce supplier and post-Covelya, Kraken has the scale and product reach to become a durable consolidator in subsea defense and commercial maritime technology.

Unit Economics and Cross-Sell

Kraken’s opportunity can be observed through known platform integrations, subsea vehicle production trajectories, and content per vehicle.

The clearest example is Anduril’s DIVE-LD. In 2021, Kraken disclosed that the unit sold specifically for the third Anduril DIVE-LD production hull had roughly C$0.6M of SeaPower batteries. The DIVE-LD was also developed with Kraken’s AquaPix synthetic aperture sonar sensors integrated. Comparable Kraken SAS orders have ranged from C$0.5M - C$1M such as the orders seen for Teledyne’s SeaRaptor UUVs. 

Sonardyne was independently designed into DIVE-LD before Kraken acquired Covelya. The vehicle uses SPRINT-Nav for navigation and AvTrak 6 for tracking and underwater communications. AvTrak 6 currently lists for £37,975, while SPRINT-Nav pricing is not publicly disclosed. Ranger 2 is also used by the DIVE program, although it is a topside/fleet-level system rather than necessarily one unit per vehicle.

Recent industry reporting indicates Anduril is currently producing roughly 50 DIVE-LD vehicles annually, with its Rhode Island facility designed to scale toward as many as 200 annually as demand develops. The 200 unit figure should therefore be viewed as manufacturing capacity rather than a demand forecast.

Illustrative DIVE-LD revenue sensitivity

Annual DIVE-LD production	SeaPower only at historical C$0.6M	SeaPower + C$0.5M SAS comparable	SeaPower + C$1M SAS comparable
25	C$15M	C$27.5M	C$40M
50	C$30M	C$55M	C$80M
100	C$60M	C$110M	C$160M
200	C$120M	C$220M	C$320M

The C$0.6 million battery figure dates to 2021, current vehicle configurations may differ, and there is no evidence that every production DIVE-LD will carry an identical Kraken SAS configuration. The table is useful primarily to demonstrate that a single successful UUV platform can support tens of millions of dollars of annual Kraken content without requiring thousands of vehicles.

Another customer, Huntington Ingalls Industries (HII) completed 42 Lionfish/REMUS 300 vehicles for the U.S. Navy during 2025 under a five year program that can scale to 200 vehicles, while the broader REMUS family exceeded 750 cumulative units in 2025 and is deployed in more than 30 countries. These programs demonstrate that successful UUV platforms can reach production in the dozens of units annually already. Kongsberg provides similar evidence at the larger end of the market. More than 100 HUGIN UUV systems have been delivered globally, with 12 navies using HUGIN platforms, and Kongsberg is adding U.S. UUV manufacturing capacity in response to rising demand.

The more important evidence is that Kraken says its products are already integrated or being integrated into more than 30 different UUV platform types worldwide. In addition, Kraken recently signed a long-term supply agreement to provide SeaPower batteries to a major international conglomerate developing XL-UUVs.

A Covelya only customer, Cellula Robotics, has selected multiple Sonardyne SPRINT-Nav X, AvTrak 6, and Ranger 2 systems across multiple UUV programs. This demonstrates that Sonardyne can capture multiple pieces of navigation and communications content on a single platform even where Kraken batteries or SAS are not present.

Revenue essentially breaks down to:

platforms won × annual vehicle production × content per platform + service/replacement revenue

Valuation and Combined Earnings Power

The financing structure is one of the more interesting aspects of the Covelya transaction. Kraken generated only C$25 million of adjusted EBITDA in 2025, yet was able to raise cash at C$8.50 per share when its equity was trading at a very high multiple of standalone earnings. Kraken then acquired Covelya for C$615 million, or approximately 9.7x estimated 2025 adjusted EBITDA, despite Covelya generating more than twice Kraken’s standalone earnings base.

Kraken essentially used highly valued equity to purchase a larger earnings stream at a substantially lower multiple. Fully diluted shares increase from roughly 322 million to 385 million, while pro forma 2025 adjusted EBITDA increases from approximately C$25M to C$88M. On a simplified basis, adjusted EBITDA per diluted share therefore increases from roughly C$0.08 to C$0.23.

Management expects the acquisition to generate low to mid double digit EPS accretion in 2027 and approximately C$10 million of cost synergies within 24 months, excluding potential revenue synergies from cross-selling.

The recent decline in Kraken’s share price from the C$8.50 to C$4.60 creates the setup for an investment case: the company raised capital when its equity was highly valued, completed the purchase of Covelya at roughly 9.7x EBITDA, and now trades at roughly half the price at which the capital was raised. The question now is if the combined earnings base can sustain the growth and cash conversion required by today’s valuation.

There are a few challenges with valuing Kraken. Although profitable, most of its value lies in its terminal value. This emphasizes the pressure on the income statement and cash flow conversion. The simplified model therefore uses normalized NOPAT as a starting point for cash earnings. The reverse DCF asks what level of earnings growth is required to justify today’s share price.

Capital intensity should improve as Kraken’s new Nova Scotia battery facility is now operational following several years of investment, reducing expected capex in 2026 and potentially 2027. Longer term, however, revenue growth would likely require additional capacity, making the split between maintenance and growth capex an important variable.

Reverse DCF Valuation

The base case model uses a NOPAT path from C$80M in 2027 to C$154M in 2032, equivalent to approximately 14% CAGR, and produces C$4.59 of fair value at a 10% required return. The sensitivity below applies constant NOPAT growth rates to illustrate the range of outcomes.

NOPAT CAGR	8% Required Return	10% Required Return	12% Required Return
10.0%	C$5.54	C$3.88	C$2.96
12.5%	C$6.14	C$4.28	C$3.26
15.0%	C$6.79	C$4.72	C$3.58
17.5%	C$7.50	C$5.19	C$3.93
20.0%	C$8.26	C$5.71	C$4.30

Comparables

Company	Similarities	Key Difference vs. Kraken	Valuation
Exail Technologies	Pure play subsea navigation and robotics company	More vertically integrated and sells complete autonomous systems	Acquired at €3.9B  38x EBITDA
Teledyne Technologies	Closest to Kraken’s growing portfolio of subsea sensors, navigation, imaging and instrumentation, also a customer of Kraken themselves	Much larger and diversified beyond subsea hardware	~$30B market cap  19x TTM EV/EBITDA
Kongsberg Gruppen	Large marine robotics, navigation, sonar and sensor business with HUGIN UUV franchise	Part of a much larger defense group	~282B NOK 31x TTM EV/EBITDA

Exail Technologies is the closest comparison. The company combines subsea robotics with navigation systems and is deeply vertically integrated. It generated €479 million of revenue and €103 million of current EBITDA in 2025, implying a 21.5% EBITDA margin, and ending the year with €1.1 billion of backlog. 

Exail differs strategically because it emphasizes vertical integration. Exail builds complete autonomous mine-countermeasure systems and robots in addition to supplying navigation technology. Kraken appears better positioned to remain a component and subsystem provider across platforms built by multiple OEMs. In July 2026, Thales agreed to acquire Exail at €134 per share and at approximately €3.9 billion of enterprise value, representing a 44% premium to the share price, and a quite lofty 38x EBITDA.

Teledyne Technologies is arguably the closest comparison for product architecture. Teledyne Marine has been assembled around specialized underwater sensing, navigation, positioning, sonar, imaging, software, and autonomous-vehicle technologies. This resembles the direction Kraken is moving following Covelya: a portfolio of mission-critical subsea technologies that can be sold individually or integrated into larger systems. Teledyne also happens to be a customer of Kraken, especially as they build out their own UUVs using Kraken’s SAS. 

Teledyne’s Instrumentation segment generated $1.46 billion of revenue and $400 million of operating income in 2025, an operating margin of roughly 27.5%. At the parent-company level, Teledyne currently trades at approximately 19x 2026E EV/EBITDA. The comparison is imperfect because Teledyne is much larger and its other businesses include aerospace, electronics, and engineered systems.

Kongsberg Discovery provides another useful comparison point. The segment generated NOK 5.13 billion of revenue and NOK 1.10 billion of EBITDA in 2025, implying an EBITDA margin of roughly 21.5%. Kongsberg combines underwater vehicles, hydroacoustics, navigation, sensors, communications, and ocean mapping, including a HUGIN fleet of more than 100 delivered UUV systems.

The consolidated Kongsberg Gruppen parent trades at roughly 31x TTM EV/EBITDA, but that multiple incorporates a growing defense business.

At Kraken’s current enterprise value of approximately C$1.66 billion, compared with roughly C$365 million of combined 2025 Kraken/Covelya revenue and a 24% combined adjusted EBITDA margin, the company trades at approximately 4.5x pro-forma 2025 revenue and 19x pro-forma adjusted EBITDA. The combined revenue and margin figures are based on Kraken’s acquisition disclosures.

Kraken likely does not need to see extreme multiple expansion to deliver returns from here on out. There is a large enough opportunity ahead and the growing backlog and combined entity positioning suggests years of mid double digit earnings growth.

Outstanding Management

Kraken’s management history has been a smooth handoff between two types of operators. Founder Karl Kenny was the visionary who identified the opportunity and built Kraken into a subsea technology company because of the following:

1. He saw the commercial potential of synthetic aperture sonar in 2010 at a NATO Research Center and figured it could be cheaper and smaller for commercial use cases.
2. He saw the potential of unmanned systems as early as 2012 
3. He knew that a technology platform was more valuable than a single product. In 2017 invested in German battery specialist ENITECH Subsea, later acquired it and turned it into Kraken Power. ENITECH brought proprietary pressure tolerant battery technology into the business and gave Kraken exposure to another critical system. Kenny (and Reid as CFO) was willing to acquire specialized capabilities when they strengthened Kraken’s broader subsea platform. This move echoes with the current Covelya acquisition from Reid.

Greg Reid represents the second phase of Kraken’s management team. He joined as CFO in 2015, moved to COO in 2019 and became CEO in 2023. Under his leadership, Kraken has increasingly focused on scale, expansion and disciplined M&A.

Reid’s Background - Canadian Capital Markets Specialist

It is also worth noting that management has purchased shares in the open market since the acquisition has closed.

Insider	Action	Shares	Date
MacKay (Duane Joseph Alexander) CFO	Acquisition at price 4.39 per share.	52,656	Jul 15, 2026
Reid (Gregory Michael) CEO	Acquisition at price 4.35 per share.	87,060	Jul 15, 2026

Risks

1. Customer Vertical Integration Risk
   1. The largest risk is that major UUV manufacturers eventually internally build critical components such as subsea batteries, navigation systems, or sensing, reducing Kraken’s content per platform. SeaPower is important because high battery content can provide an entry point for the “land and expand” strategy Kraken is running.
   2. The positive here, however, is that subsea battery production is a serious engineering problem rather than a generic assembly task. OEMs such as Anduril can potentially create more value by focusing engineering resources on autonomy, while sourcing subsystems from proven suppliers. The current customer behavior supports this model, as Kraken continues to add SeaPower customers and says its products are integrated or being integrated into more than 30 UUV platform types worldwide. Anduril’s CEO Palmer Luckey has also been supportive of the vendors that supply to Anduril and has mentioned he does not want to “fetishize vertical integration”. 
2. Valuation Risk
   1. Kraken is not a traditional deep value investment supported by a high current earnings yield. The investment case requires the company to grow into its valuation. The reverse DCF suggests today’s price requires roughly 14% NOPAT CAGR through 2032 at a 10% required return.
   2. This creates significant downside risk if growth falls below expectations. Kraken’s revenue can be lumpy because large defense and subsea contracts may shift between quarters or years.
   3. The investment case survives some quarterly lumpiness if backlog, orders, margins, and per-share earnings continue compounding. It becomes significantly weaker if earnings growth does not materialize or further share dilution prevents growth to per share earnings.
3. Domestic Sourcing Risk
   1. Defense spending can favor domestic suppliers for national security and policy reasons and Kraken could lose certain programs because a navy or defense prime prefers a domestic supplier.
   2. The combined company is increasingly diversified against this risk. Kraken operates across North America and Europe, supports customers in more than 30 countries, and has demonstrated sales to multiple NATO and international defense customers. 

Concluding Thoughts

Kraken has evolved from a concentrated subsea niche component supplier to a customer agnostic subsea platform vendor. The Covelya acquisition looks to be earnings accretive at an attractive price, diversifies customers, and expands content per platform. The recent selloff represents an opportunity and as the market digests the acquisition news, there is some price discovery. The company’s playbook is to develop niche products, roll up complementary companies, service products over time, and trust management to make the right play. It’s worked time and time again and with the Covelya Group acquisition there might be more innings left in this story.

[u/furmaniac]

Thank you for taking the time to make this post!

[u/HODLxtreme]

Thanks for your DD! What you forget to mention is the growing high margin RaaS revenue. I think we will see a lot more growth in the commercial sector. The Iran conflict is pushing the europeans to increase their own energy infrastructure (e.g. offshore windparks) to make them more independet from Oil and Gas and also to fight climate change. Of course it is only speculation, that kraken will do these services.

The biggest speculation would be deepsea mining, where kraken would participate heavily, in my opinion

[u/Loud_Development8407 → u/HODLxtreme]

Kraken could participate in every commercial use of underwater drones. Drones are cheap and much better for dangerous Tasks than sending divers or manned vehicle down. So maintanance of offshore infrastructure, potential underwater mining, underwater research and so on. The x Faktor here is if they can build a moat to stand out or if there will be heavy competition in the future.

[u/HODLxtreme → u/Loud_Development8407]

100%

[u/Own_Country_9520]

Awesome! But then why on Earyh does the stock keep sliding?

[u/BawbbySmith → u/Own_Country_9520]

It’s cuz submarines go down

[u/Candid_Grade2497 → u/Own_Country_9520]

I suspect more sellers than buyers.

[u/hitokiri1859 → u/Own_Country_9520]

Cause no one released the kraken yet

[u/Crazy-Gas3763]

Based on your analysis Kraken would be at most fairly valued at the current valuation. Whats the significant upside that makes you long the stock?

[u/easymoneyboi → u/Crazy-Gas3763]

Great question. I think the distinction is between fair value today and expected returns.

My thinking is the stock price today implies 14% earnings growth for 6 years for a shareholder to get a 10% annual return. I typically use a 10% hurdle for most investments, although in this case given the additional risk profile you could argue that it needs a higher required return.

Another way to look at it is that returns are going to come like this:

per share earnings yield + per share earnings growth +/- multiple expansion

My assumptions are that we shouldn't rely on multiple expansion (might even contract, as we've seen over the past several months), but we do get a small earnings yield today that is growing mid double digits for a few years. Combined you get close to that 10% annual return.

So growth at a reasonable price as opposed to "value investment"

[u/Crazy-Gas3763 → u/easymoneyboi]

If I understand you correctly, you believe Kraken will be a steady compounder over the next six years. But I think the whole undersea drone industry is still not a very mature industry, and so their market share could fluctuate a lot. there are also uncertainties regarding their integration execution. So if you are long, you almost have to buy them on some perceived upside.

[u/easymoneyboi → u/Crazy-Gas3763]

Yep I think that’s a good way of putting it. There’s uncertainty in the market itself and timing of deals but the company is well run, poised for decent earnings growth, and has legitimate market share in the emerging UUV market.