Kistos Holdings Investment thesis

Kistos Holdings (LON:KIST) Investment Thesis

Introduction to Kistos PLC

Kistos is an investment company targeting opportunities in the transition energy market. It made its IPO in November 2020, raising £31.75 MM. Its strategy is to take advantage of companies looking for the sale of interesting assets due to a variety of reasons (ESG pressure, non-core assets, new regulations, etc,..) to pay low prices and extend their useful lives by techniques like infill drilling, etc

In April 2021, Kistos raised capital again to fund the acquisition of Tulip Oil for €223MM (comprising €140MM plus an €87MM bond refinancing and other adjustments).  It was a privately held exploration and production operator (oil & gas) with assets in the Northern sea and Germany.

Later, in January 2022, Kistos acquired a 20% interest in the Greater Laggan Area in the UK.  The price was $125MM and thanks to high natural gas prices & deal structure, it has been self-paid in less than a year. Total (the seller) still has 40% of the GLA stake and is the operator.

These two acquisitions are producing around 12kboepd (6+6) net to Kistos. It has no hedges in place and low Opex (mainly in the Netherlands) with average unit costs of around€5/MWh, Furthermore,  Kistos’ asset portfolio provides significant organic upside. It could produce 25 kboed by 2025.

However, to understand Kistos, it is necessary to talk about Rockrose Energy and Andrew Austin (Kistos’ executive chairman). RockRose Energy was an energy company that operated in the North Sea. And Andrew was the CEO of Rockrose from 2016 to 2020. During these four years, Austin delivered a 42x return for Rockrose shareholders pursuing a similar strategy that he is trying to do in Kistos, and again in the North Sea. Although Kistos was created to replicate the success of RockRose, the main difference is that RR was focused on old legacy assets producing oil and Kistos is focused on assets producing natural gas.

Kistos Investment Thesis

Our investment thesis is based on two pillars:

  • The structural deficit of natural gas in Europe (increased as a consequence of the sanctions on Russia) will maintain natural gas prices high in Europe for the foreseeable future. From our perspective, Europe took the wrong approach to the green transition. They criminalise investment in energy (other than renewable) and forced majors to diminish their investments in fossil fuels. It would be fantastic if we had the required infrastructure developed enough. But we have not and it is not going to happen soon (batteries, network,..) .Consequently, natural gas production in Europe halved in less than 10 years and as renewable energies are intermittent we are vulnerable and need to import energy from other countries. Then, Russia invaded Ukraine, Europe shoot itself sanctioning Russia and the rest is history… The consequence of all this is Europe is very vulnerable and it needs to pay higher prices than the rest of the world to bring energy (LNG). At the same time, if the energy (LNG) goes to Europe, it is not going to its traditional destination (which cannot afford to pay such high prices). It entails energy problems in the developing world and tough competition with Asia for the marginal natural gas unit, which maintains the price high.
  • Superlative management team, with experience in the North Sea, an outstanding M&A track record and strong shareholder alignment with around 20% stake in the company. The fact that oil & gas majors need to focus on renewable energy instead of traditional fossil fuels, means that they also need to disinvest in Oil&Gas assets as they are quite capital intensive. It creates good opportunities for small players like Kistos who can acquire interesting assets at a significant discount. Nevertheless, the most distinguishing characteristic that Kistos have compared to any other peer is Andrew Austin (Executive Chairman) and his team. They have enormous experience doing the same business in the North Sea with unbelievable results. The first months of Kistos have been much better than planned thanks to the high natural gas prices (starting just after the acquisition in the Netherlands) and Kistos have a lot of liquidity to accelerate its initial business plan. Furthermore, we believe that the mess that governments (EU & UK) are doing with taxes will force some majors to exit these jurisdictions, inviting Kistos to carry out some of its fantastic deals.
 

Kistos Investment thesis Date: 27th Nov 2022

Kistos Capital Structure

1Common Shares£377MM
2Preferred Shares0
3Debt€83.3MM

 

Main Shareholders

Kistos PLC shareholders

 

Earning Metrics

€MM202020211H22
RevenueN/A89.6285.1**
EBITDAN/A78.8261**
EPSN/A-0.68*0.63

 * Q11B impairment (€121MM), 59MM share average in 2021 

**Pro-forma (Including GLA)

 

Stock Information

82.8nº shares
525k3mth avg vol
1.5Beta
318-665p 52 Week Range

 

Kistos share price $Kist

 

Become premium!

The rest of the article is only for Premium subscribers. Gain access to our new content, including deep investment theses, actionable ideas, meetings with companies, macroeconomic articles, investment guides for different industries, Q&A with the team...