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Rocket man

Tim Boreham
Thursday, June 06, 2019

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In space, no one can hear you scream – except for the residual howls of pain from investors in former ASX-listed market darling NewSat, which went broke in mid 2015 after its $600 million-plus plans to launch a telecommunications satellite crashed and burned.

NewSat’s woeful corporate governance practices aside, the company wasn’t helped by the inherently high cost of blasting a payload beyond Earth’s surly bonds.

But since then, the economics of satellites have changed radically.

Advances in electronics miniaturisation, sensors and rocketry mean that satellites can be much smaller and more versatile, as well as much cheaper to launch.

In the ‘new space’ economy, private capital has replaced the Cold War model of NASA versus the Ruskies.

According to First Berlin Equity Research, NASA forked out $US54, 500 ($77,850) for every kilogram of payload sent up by its space shuttles. SpaceX’s Falcon 9 rocket can do it for $US2720/kg, with this figure expected to reduce to $US1700/kg.

This month, Kleos Space (KSS, 23 cents)  joins the latter-day space race with the expected launch of its first cluster of ‘nano satellites’, measuring  just 20-30 centimetres and hovering a mere 500 kilometres above us.

Strictly speaking, is that even space?

A spin off from the British engineering firm Magna Parva, Kleos listed here in August last year after raising $11 million at 20 cents apiece.

Based in Europe’s emerging satellite technology capital of Luxembourg, Kleos is focused on detecting radio frequencies, notably those emitted by ships’ navigation and communication systems.

Unlike GPS, radio frequency can’t be turned off, which makes it ideal for locating vessels engaged in nefarious pursuits. Think of drug smuggling, illegal fishing, discharging bunker oil and, of course, human trafficking.

Given the boat-spotting potential, we would be surprised if Sco-Mo didn’t have Kleos on speed dial. “Our aim is to get as many early adopters to grow with the business,” Kleos founder and CEO Andy Bowers says. “We are not aiming to have massive revenues on day one.”

First Berlin guesstimates Kleos will manage €1.1 million ($1.78 million) of revenue in the current year, rocketing – pardon the pun - to €21.6 million by 2021-22.

Kleos’s advantage doesn’t lie in the nano satellites themselves (they’re made by Denmark’s Gom Space) or the rocketry (that part’s done by California’s Rocket Lab).

Rather, it’s all about the company’s  secret-sauce intellectual property relating to how the satellites are configured and positioned.

Bowers says Kleos is the only provider of spatial radio-frequency data in Europe and one of only two in the US (the other is the bigger HawkEye).

Despite the dramatically lower cost of blasting tinfoil into space, Kleos is likely to need to bolster its cash to fund expansion.”We are a capital-intensive business,” Bowers says. “If we need to launch more satellites we will need to raise more capital, whether through more shares or debt, or a combination of both.”

Kleos is not the only ASX satellite play, joining Sky & Space Global (SAS, 2.8 cents) and  Speedcast  International (SDA, $3.86).

Also a nano satellite play, Sky & Space Global is developing a network to provide telco services to underserved Equatorial areas.

The bigger Speedcast sells capacity on other parties’ satellites, with clients including Carnival Cruises and deepwater drillers and oil rigs (which account for about one quarter of total revenues).

We’ll also chuck in Elecro Optic Systems (EOS, $3.26), which generates most of its revenue from remote controlled gun turrets but is also developing a capacity to track space junk that is hazardous to satellites.

tim@independentresearch.com.au

Disclaimer: The companies covered in this article (unless disclosed) are not current clients of Independent Investment Research (IIR). Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

Published: Thursday, June 06, 2019


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