13.01.2025
Last week, Kistos, which is an independent energy company with operations across the upstream and midstream energy markets, with its offshore and onshore portfolio spanning the UK, Norway, and the Netherlands, issued a Trading Update ahead of its 2024 Finals.
It was a positive statement and highlights the attractions of this £95m-capitalised group, whose shares are now 115p and could be heading to 200p in the short-term.
The Business
Kistos Holdings (LON:KIST) was established in 2020 to acquire and manage companies in the energy sector engaging in the energy transition trend.
It has subsequently undertaken a series of transactions including the acquisition from Tulip Oil Netherlands B.V. of a portfolio of highly cash-generative natural gas production assets in the Netherlands in 2021.
That was followed in July 2022, with the acquisition from TotalEnergies of a 20% interest in the Greater Laggan Area, which includes four producing gas fields and a development project.
In May 2023, it completed the acquisition of Mime Petroleum adding 24 MMboe of 2P reserves and significant production.
In April last year, Kistos completed the acquisition of UK gas storage assets, which due to the fast cycle nature of the facility, can deliver up to 11% of the UK's flexible daily gas capacity if called upon.
Today its operations span the UK, Norway, and the Netherlands, while its investments across the value chain include upstream operations, both offshore and onshore, and the operation of critical infrastructure to process and store hydrocarbons for ready deployment in the energy market.
Trading Update
On Wednesday 8th January, the company provided a trading and operational update ahead of its results for the year to end-December 2024.
With the Trading Update, Chairman Andrew Austin stated that:
"Our production assets performed well throughout 2024, ensuring we achieved production guidance and delivered strong cash flow.
The receipt during December 2024 of the 2023 tax rebate of $84 million relating to our Norwegian assets further simplified and strengthened our balance sheet.
We expect to receive approximately $65 million of tax rebates in 2025 in respect of investments made during 2024, which continues to demonstrate the strong investment environment in Norway.
With proforma net debt of approximately $45 million and strong access to liquidity, the Company remains well-placed to fund existing developments and future growth opportunities.
As we enter 2025, a major milestone remains the further expansion of our production profile in Norway, driven by first oil from the Balder Future development.
The next major development chapters in the area will also commence this year, with Balder Phase V commencing drilling, whilst we anticipate that Vär Energi will focus significant resources on maturing the Phase VI and 2C opportunities which have been identified on the Balder area.
Coupled with planned exploration in the area, there remains material potential to convert resources to reserves, thereby extending field life and improving field economics.
Our portfolio continues to offer significant potential organic growth opportunities, from new oil production in Norway, to gas developments in the Greater Laggan Area and expansion of capacity at our UK gas storage facility.
Furthermore, given our robust cash position, the Board continues to assess acquisition opportunities that offer value accretive expansion."
The Equity
There are some 82.86m shares in issue.
The larger holders include Andrew Austin, Chmn (17.25%), Tulip Oil Holding (10.55), Investec Wealth & Investment (5.02%), Schroder Investment Management (4.98%), FIL Investment Advisors (4.91%), Canaccord Genuity Wealth (3.95%), Trium Capital (3.88%), Peter Mann, CEO (1.53%), and Richard Benmore, Dir (1.37%).
Analyst Views
Analyst James Carmichael, at Berenberg, rates the group’s shares as a Buy, with a 230p Price Target.
Following last week’s Trading Update he stated that the company is on track to deliver the first oil from its Norwegian project by mid-2025 and thereafter increased production should help to generate some real long-term value for the group.
Carmichael noted that there was further potential upside in the UK gas storage business, and potential for additional investment in the offshore UK portfolio once operatorship is transferred in the first half of 2025.
His conclusion is that he believes that Kistos is in good shape, with its key asset approaching first oil and the balance sheet providing flexibility to continue screening potentially accretive inorganic opportunities.
David Mirzai, at SP Angel, reckoned that 2024 was largely a year of transition for Kistos, with first oil from the Balder Future development (10% WI) expected in 2Q25, which targets gross production of 80kboe/d through the Jotun FPSO and gross 2P reserves of 150mboe.
He states that the company’s shares were negatively impacted last year by the liquidity concerns of US investors impacting market sentiment following the repayment of the Dutch bond and production declines from the UK and Dutch assets.
With the Norwegian assets expected to make a positive contribution to cash flow from mid-2025, Kistos is considering further gas developments in the Greater Laggan Area and an expansion of capacity at its UK gas storage facility.
At Panmure Liberum, analyst Ashley Kelty rates the group’s shares as a Buy, after raising his Price Objective to 324p from 284p previously.
The broker states that:
“We remain bullish on the outlook for commodity prices in the near term – particularly for natural gas.
Both oil and gas have strengthened in recent months, and while the oil market could be oversupplied in the near-term.
Consequently, we see this as leading to stronger revenues for Kistos.
We remain of the opinion that the shares have been oversold as a consequence of the negative sentiment towards the sector and the regressive fiscal changes in the UK.”
His estimates for the year to end-December 2025, are for sales to rise from a 2024 estimated £196m to £231m, with adjusted pre-tax profits rising from an estimated £62.1m in 2024 to £94.7m this year, lifting earnings to 86.8p per share for 2025 against a possible 10.0p loss in 2024.
For the 2026 year, Kelty is looking for £253m sales, £120.0m profits and 107.3p per share in earnings.
He reckons that the coming months should see material growth in production alongside progress towards further development in the UK.
The broker updated its forecasts to reflect its current price assumptions and argued that wider fundamentals and upcoming opportunities should reset investor expectations.
In My View
A year ago, this group’s shares were trading at about the 180p level, since when they have been down to 93p.
With the benefit of the Trading Update, the shares have started to show some price recovery, now to around 115p – that offers an excellent upside, especially if investors follow broker analyst
's Target Prices.
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