When Kjetil Bøhn resigned as Quantafuel CEO, he announced that he wants to focus on his next ventures.

Kjetil is the sixth largest shareholder in Kyoto Group. I am long Kyoto.

Fearnley just published research on Kyoto, below is a summary:

Moving From Start-up to Scale-up
KYOTO reported its first update today recording 1H21 EBITDA of c. NOK -16.2m vs. FSest at c. NOK -15.0m. On the cash flow, KYOTO reports NOK -14.6m in CFO and NOK -5.4m from CFI (payment to buy intangible assets). Further, the cash position is currently NOK 158.9m. While the numbers are of limited interest for the time being, our focus is on the operations and outlook for the remainder of 2021/'22. The report included no new project specific updates, though we note that the company reiterates its 3,000 MWh aspiring target for 2023 (first mentioned during the listing process). 

While no new project has been announced since the IPO, KYOTO announced in July that the company placed an order for their first Heatcube Thermal Battery where manufacturing of the key components have started. We expect the project to start storing electricity by early-22. Note that KYOTO will build, own and operate the battery under its Heat as a Service business model (HaaS). 

Further, as KYOTO is currently moving from start-up to scale-up, the company is looking to add 14 more people to the organization in 2021, which will also increase the cash consumption going forward. Importantly, the company expects the current business to be funded through mid-22 (FSest 3q22). 

3,000 MWh aspiration by 2023 remains firm
While we have limited visibility into the upcoming projects, we note that the 3,000 MWh (+100 batteries) number by 2023 is still mentioned as an aspiring target in the report. KYOTO expects to own 50% of the projects in 2023 while the other 50% is expected to be sales from battery as a product (BaaP – EPC contracts or direct sales). If the target is reached, we believe KYOTO could generate c. NOK 700m in sales with c. NOK 100m in EBITDA by 2023.

I also include the summary of Fearnley initiation research on Kyoto

Kyoto Group AS

Thermal Battery Player - Ready to Decarbonize the Industry

What's new: Initiation of Coverage with TP NOK 90/sh (c. 80% upside potential). Buy
Our take:  Kyoto's thermal battery solution position the company as a key player in the heat storage segment. This potential is far from priced in the share, we believe

We initiate coverage of Kyoto (ticker KYOTO) with a NOK 90/sh Target Price and a Buy recommendation. Kyoto is a unique player in the Heat Storage market for thermal batteries, a market that has been evaluated to c. EUR 300bn by 2030 in order to decarbonize industry as i) 75% of industrial energy comes from heat and ii) c. 90% of this heat comes from fossil fuels. Kyoto is uniquely positioned we believe, being an early mover in the market, aiming for a first commercial installation by 3q21.

On our numbers, the average Heatcube delivers attractive IRRs of c. 20-30% with a payback of FSest 4-5 years. This, coupled with owners with own demand and a strong team in place with extensive experience from renewables, makes for a very compelling growth story and adds support to the NOK 400m EBITDA target by 2024e, we believe. Buy.

Energy Storage – The Holy Grail to reaching Climate Targets

Energy storage is required in the energy transition as intermittency from wind and solar resources needs to be stored. This coupled with an industry sector that needs to decarbonize has made Kyoto's Heatcube thermal batteries well suited for three different stakeholders with corresponding revenue streams (i.e. industry end users for heat/power, grid operators and third-party IPPs).

Funding secured through 2022e on our numbers

Kyoto recently completed a private placement, leaving the company funded through 2022e on our numbers. Further, the company will initially own and operate Heatcubes before transitioning towards product-based EPC or direct sales, enabling an asset light business model in the long-term.

Valuation – Buy, TP NOK 90/sh

We use a 13% cost of equity and arrive at a fully diluted TP of NOK 90/sh. We model cash flows through 2030 and assign no terminal value. On top comes the potential for dual cycle – reflected in our NOK 160/sh Bull scenario. Buy

LInk to Kyoto latest webcast and presentation

https://www.kyoto.group/news/half-year-report-h1-2021-kyoto-group

DO READ MY YESTERDAY BLOG POST ON LINKFIRE. I think LINFIRE is the most interesting IPO from this year

Minutes of the call with Linkfire management

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