Kistos Holdings Investment thesis
Investment decisions

Kistos Holdings – Share Price Plummets to 52-Week Lows

Kistos holdings share price collapses

It has been a horrible beginning of the year for Kistos share price; $KIST.L has fallen off a cliff (-26% YTD) due to a warmer-than-expected winter and the still recent impact of WFT. European natural gas inventories are at 63% and they are expected to remain above 55% at the end of the winter season. This figure remains much higher than the average of the last five years (40%), affecting natural gas prices (which still remain considerably higher than the pre-2020 average).

Moreover, it has been more than a year since the last deal for the management, which is well-known for its ability to seal attractive deals. Furthermore, windfall taxes have made the North Sea unattractive from an investment perspective. Also, there is the threat for Kistos that Labour might win the next elections and tighten the current abusive policies against the O&G sector in the UK (affecting half of the current Kistos assets)

From an operational perspective, data shows that the Netherlands part of the business is suffering a heavier than initially expected decline, and in the UK, the FID of Glendronach has been delayed (mainly due to Total). Thus, it is expected that the production in the area will suffer a heavy decline in 2024.

Taking all of this into account, it is understandable that there is a negative feeling around Kistos’ share price. However, similarly to the end of August when it was the most perfect environment, the share price peaked. Not saying that this is just the opposite situation than in the summer, and this is the bottom, as we cannot know, but you understand the point.

The fact is that the market cap of Kistos today is £266MM. It recently reported that at the end of 2022, it had a net cash position of €129MM – €211MM in cash and €82MM in bonds. €21MM of which will probably be called in May at €104 (we should take out the premium for the GLA acquisition and some pending taxes). It is producing >10500 boepd at a price of €50MWh (TTF). It is also close to finishing the work in the Netherlands, which will boost production to around 2000 boepd during the first 6-8 weeks. Based on previous conversations, we can expect either a deal or buybacks in the near future.

Our thoughts about Kistos Holdings

Europe has survived this winter, and we have avoided a complete catastrophe. But do not fool yourself; until the end of 2025 when Qatar’s liquefaction capacity will be ready, Europe has to survive without Russian natural gas. And as Europe is producing only around 15% of what it consumes, it will need to pay higher prices than Asia and the rest of the world to secure that the shipments arrive in Europe. It means at least 3 years of high prices (as the TTF forwards point out).

Kistos is in a net cash position only 2.5 years after the IPO. Natural gas is above €50MWh, and it looks like it will remain high for the foreseeable future (the WFT in the Netherlands applies from €46MWh). The management is the main shareholder, and bond covenants (banning buybacks & dividends) could be removed as soon as May if they buy the remaining bond and reach an agreement with Tulip (which is an important shareholder, so we believe the agreement will be reached). Obviously, the warmer-than-usual winter and windfall taxes have impacted the enormous revaluation potential that Kistos had. However, we are pretty convinced that we are still talking about bagger potential in a few years, as in the end, we are in the hands of the same management, and natural gas is going to remain expensive.

Disclaimer: We have direct long exposure to Kistos Holdings shares

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