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

The US National Reconnaissance Office (NRO) has awarded six companies, including Kleos Space SA, a first-stage contract to evaluate their radio frequency (RF) intelligence capabilities. Kleos is the only non-US headquartered player awarded such a contract by the NRO. Kleos‘ pilot contract will focus on modelling and simulating its capabilities and analysing how collected data can support the US Government’s current and future commercial RF reconnaissance needs. Follow-on stages will concentrate on tasking, data collection and direct delivery of data to end-user agencies. The initial value of the pilot contract will be non-material. However, if this pilot is consistent with previous new space electro-optical imagery contracts awarded by the NRO, there is a strong potential for the pilot to evolve into substantial follow-on contracts for Kleos. Due to the Ukraine crisis, the US NRO has been buying electro-optical and radar imagery and RF data for the region. The NRO is responsible for building and operating the US Government’s space-based intelligence, surveillance, and reconnaissance capabilities, providing them to Government agencies. Moreover, the US Government is among the largest single clients in these matters worldwide. Thus, we believe this contract is of considerable significance for Kleos, as it will allow the company to demonstrate to the US Government the superior capabilities of its technology based on a 4-satellite cluster (vs peers using fewer satellites). Kleos is currently in the final stages of commissioning the Vigilance Mission cluster, and we anticipate that it will begin operations soon. The third cluster, Patrol Mission, should also start operations a few months later. The fourth satellite cluster, Observer Mission, is scheduled to launch on the Transporter-6 SpaceX rocket in Q4 2022 (by November/December). According to the company, the satellites have completed the final testing phase and will be sent to the launch site in the US for integration with the launch vehicle later this month. Based on unchanged estimates, we reiterate our Buy rating and AUD 1.60 price target.