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 1.00 to AUD 0.50.

Kleos Space SA (Kleos) has reported FY 2022 financial results which were overall slightly better than our estimates. Revenues increased by 117% to €272k, (FBe: €107k; 2021: €126k). EBITDA was €-10.5m (FBe: €-10.7m; 2021: €-4.6m). EBIT amounted to €-11.3m (FBe: €-11.4m; 2021: €-5.4m). The net result came in at €-7.3m, substantially better than our projection of €-11.7m (2021: €-6.4m), chiefly due to a €4.3m non-cash gain on financial derivatives. The gain resulted from warrants losing value due to Kleos‘ sharp share price decline from €0.75 at YE 2021 to €0.20 at YE 2022. The net result adjusted for this non-cash item was €-11.6m, and so slightly better than our forecast. Kleos also completed the previously announced capital increase. It raised AUD 2.4m at AUD 0.18 p/s, an amount slightly below the targeted AUD 3m. Importantly, the Vigilance Mission cluster (KSF1) has entered the operational and commercial stage. Kleos started delivering daily data to customers on 17 February, including the data owing to early adopter customers from the 2022 contracts in connection with the €900k deferred revenue. This amount was recognised as revenue in February 2023. We believe this is excellent news and represents a key milestone for Kleos. Patrol Mission (KSF2) is undergoing commissioning. Unfortunately, KSF2 is now not expected to begin operations until the end of July, ~4 months later than previously scheduled. Observer Mission (KSF3) should be operational during H2 2023 as planned. In addition, the US National Reconnaissance Office (NRO) has awarded Kleos a contract extension to participate in the second stage of their programme to evaluate the company’s radio frequency (RF) intelligence capabilities. The main goals of this new stage are that Kleos can 1) demonstrate the accuracy of its RF geolocation data and 2) explore ways of upscaling its capabilities to meet the intelligence needs of the US government and its international partners. The agency will also purchase RF data during the programme. Following the reported 2022 figures, and the new delay in commissioning KSF2, we have adjusted our estimates. Our DCF model yields a lower price target of AUD 0.50 (old: AUD 1.00). Our Buy rating remains unchanged.