with a Buy Recommendation
Target price of $1.25
Kleos Space (ASX: KSS) is currently trading ~54c
Kleos Space S.A - Positioned to Launch
Kleos Space is a developer of satellite clusters used to collect radio frequencies which are then translated into geolocation data. This data is highly valued by defence and government agencies in intelligence, surveillance, and reconnaissance used to protect against potential threats and advance strategic interests. Petra initiate with a Buy and $1.25/share target price. Petra see a compelling investment case driven by a healthy pipeline of opportunities, sustainable low operating costs and the ability to scale rapidly.
RF Geolocation Data the New Frontier In Defence
· Space derived radio frequency (RF) geolocation data is the new frontier in intelligence, surveillance & reconnaissance (ISR) being valued by defence and government agencies, who have started using the data.
· RF geolocation data is ingested into intelligence analytics platforms to help measure and identify activity over wide areas in a cost effective and efficient manner.
Large Market Opportunity
· RF geolocation data taps into existing spending streams of military and defence (a US$2T industry growing at ~2% p.a) and Earth Observation (a US$4b industry growing at ~6% p.a). The subsectors of Space and non-imagery satellite data are growing at an even faster rate.
· Rising geopolitical tension and concerns over regional security points to a backdrop which could see spending growth in defence and security accelerate from current levels. Critical areas of interest include; The South China Sea, North Korea, Taiwan, Eastern Europe, and Russia
Significant Near-Term Growth to Materialise
· KSS’s has a pipeline of over 260 opportunities. Management has a high level of confidence that this pipeline will convert in the short term, as customers roll off trials.
· Petra forecast sales ~€14m in FY23 driven by monetisation and uplift in average data use. We have kept ARPU flat in FY23 as management attempts to drive further market adoption by prioritising customer growth.
· Petra forecast EBITDA margins of >40% in FY24 and >50% in FY25. This translates into FCF’s of >€10m in FY25 representing a healthy FCF yield of ~15%.
Valuation Implies >100% Upside
· Petra target price is equal-weighted between their peer EV/EBITDA valuation and their risk-adjusted DCF.
· Petra set a 12-month target price at $1.25/share seeing meaningful upside to the current share price.
· As KSS transitions through EBITDA and cash flow breakeven, there is a strong case for a further rerating as the business de-risks and the business model is proven.
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