First Berlin Equity Research has published a research update on Kleos Space S.A. (ISIN: AU0000015588). Analyst Christian Orquera reiterated his BUY rating and decreased the price target from AUD 2.60 to AUD 1.60.

Kleos Space SA (Kleos) has published its H1 2022 financial statement and business update. Due to satellite commissioning delays, the results were weaker than anticipated. The company reported sales of only €107k (FBe: €1.7m) in H1 2022. However, cash receipts from customers amounted to €947k, and total purchase orders received were €1.3m. The positive EBITDA projected for mid-2022 was missed and is now targeted for H2 2022. Reported EBITDA amounted to €-5.4m in H1 2022, below our estimate of €-1.1m (H1 2021: €-2.1m). This number was affected by non-cash expenses of €3m related to the write-off of the first satellite cluster – Scouting Mission (SM). Unfortunately, SM had to be shut down in August due to an irreparable technical failure. While disappointing, this misfortune has little impact on the company’s revenue prospects. SM was conceived as a demonstrator, having I) little capacity, II) much inferior technological capability, and III) been purchased from a different manufacturer compared to the following three clusters. The company has secured debt financing amounting to AUD 10m or €6.5m (split into two tranches of AUD 6m and AUD 4m) from the Australian financing boutique PURE Asset Management Pty Ltd. The first tranche was drawn down on 15 August. This is good news. These funds will allow Kleos to finance the planned purchase of one to two additional satellite clusters to fuel sales growth. Kleos‘ updated guidance foresees that the second (Vigilance Mission) and third (Patrol Mission) satellite clusters currently undergoing commissioning will begin operations after a delay in H2 and Q4 2022 respectively. The fourth satellite cluster, Observer Mission, is scheduled to launch on the Transporter-6 SpaceX rocket in Q4 2022 (by November/December). Management expects it to be operational during H1 2023 (previously: year-end 2022). In light of the launch and commissioning delays, we have lowered our revenue forecasts for 2022 and beyond. We have also adjusted our expense projections in accordance to the cost structure seen in H1 2022. We have updated our DCF model and arrived at a lower price target of AUD 1.60 (previously: AUD 2.60). Despite delays, Kleos‘ valuable RF data is in high demand in the current difficult geopolitical environment. We reiterate our Buy rating based on the stock’s substantial upside potential from current levels. (p.t.o.)