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 1.60 to AUD 1.00.

Kleos Space SA (Kleos) has published its Q4 2022 cash flow report and business update. Cash receipts from customers amounted to €1.4m in FY 2022. At YE 2022, the company reported cash and cash equivalents of €1.8m (FBe: €2.0m). Kleos also conducted a capital increase of AUD 3m at AUD 0.20 p/s, representing a 9% discount to the last close on 25 January. We estimate that these funds extend the cash runway into Q2 2023 excluding potential new revenue. Kleos has announced that the Vigilance Mission (KSF1) cluster started delivering initial RF data to its customers at the end of December 2022 (FBe: end of November / early December) and has now achieved daily delivery. However, we suspect time was insufficient to process and deliver all the data required to recognise the ~€1m deferred revenue in Q4 2022. Thus, we have cut our FY 2022 sales projections to €0.1m (previously €1.2m) and expect the deferred revenue to be recognised in Q1 2023. KSF1 is not working at full capacity yet. Due to technical issues and delays in fixing them, the company has not been able to conduct altitude optimisation of these satellites in a timely manner. Suboptimal altitude negatively impacts their natural degradation process. Based on current calculations, KSF1 satellites may have a remaining life of only 1.5 years (FBe: 3-5 years), which is disappointing. Patrol Mission (KSF2) is undergoing commissioning and is now expected to begin operations by the end of Q1 2023 (previously: early Q1 2023). KSF1 has focused commissioning on two satellites and KSF2 on three. The other satellites in these two clusters had technical problems, and solving them will still take some time. Due to Kleos‘ recent technology improvements, two satellites per cluster are sufficient to deliver clients‘ required data quality. Observer Mission (KSF3) successfully launched on the Transporter-6 SpaceX rocket on 3 January 2023. Management expects KSF3 to be operational during H2 2023 (previously: H1 2023). Due to KSF1’s shorter life and delays in commissioning KSF1, KSF2 and KSF3, we have lowered our financial forecasts for 2022-2025. Our DCF model yields a lower price target of AUD 1.00 (previously: AUD 1.60). We confirm our Buy rating. In 2023, we anticipate that Kleos will have three fully operating clusters and achieve positive EBITDA for the first time.