Keystone FinancialFor those who are unaware, Ryan Irvine and this team look at over 5000 stocks per year and select less than 10 for their subscribers. A number of unknowns here but this is a pretty solid assessment. GLTA
Cameco (CCO:TSX)
Rex – via email – The stock has done quite well over the last year, up 74%, and is up 280% over the past 5 years.
Slide 1
Price: $56.26
Market Cap: $24.2 Billion
Dividend Yield: 0.2% (Annual frequency)
Description:
Cameco is a Pure-Play Uranium producer headquartered in my hometown of Saskatoon Saskatchewan. The company has two segments which include:
- Uranium (85% of Sales MRQ)– exploration, mining, milling and sale of Uranium.
- Fuel Services (15% of Sales MRQ) – involves the refining, conversion & fabrication of uranium concentrate and sale of conversion services.
Slide 2
Cameco has mines in Northern Saskatchewan and the United States, as well as a 40% interest in the Inkai JV with Kazatomprom (majority owned by the Kazakh Government). Now, other than the JV in Kazakhstan only two of Cameco’s mines are operating which are Cigar Lake and McArthur River.
Operations at McArthur River/Key Lake, had been suspended in 2018 due to deteriorating market conditions but resumed in November of 2022. The Rabbit Lake operation in Saskatchewan was placed on care and maintenance in 2016 (which it remains on). Cameco’s operations in the United States include, Crow Butte and Smith Ranch-Highland, but all are currently not producing as the decision was also made in 2016 to curtail production.
As I said its second segment is Fuel services which supplies much of the world’s reactor fleet with the fuel to generate electricity. These facilities are within Ontario.
Slide 3
Over the long term, revenue and earnings have been on a declining trend due to the persistent decline in the price of Uranium… which led the company to place several of its mines on care & maintenance in 2016/2018 to curtail supply and help the weak market conditions recover.
Since then, the price of Uranium has been on a recovery and as such so has Cameco’s stock price.
Looking at the last quarter (Q3 2023) reported in October:
-
- Revenue was up 48% Y/Y to $575M –
- Net income was up to $148M compared to a loss last year
- EPS was $0.34 cents compared to a loss of ($0.05) for Q3 2022.
Balance sheet is healthy:
- Cash: $2.667B
- Debt: $997.6M
- Net Cash: $1.67B
Right now the business trades with a trailing P/E of 90x and P/CFO of about 45x but of course these are elevated due to the recent run in Cameco’s stock price… and given the increase in the price of Uranium which higher prices will be realized over the next few quarters compared to the trailing results, sooo the forward multiple should be more reasonable…. but we just do not know how much more reasonable. If for example they were able to replicate Q3 2023 over the next 3 quarters the P/E multiple would be closer to 40x.
Slide 4
At the end of the day though… the price of Cameco will go where the price of Uranium goes, as shown by my overlay chart here with Cameco’s stock in the blue and Uranium Futures prices in the Orange line. So as you can see, if Uranium does well, Cameco’s stock will do well and vice versa.
Slide 5
Management said on the Durability of Demand & Supply – Climate Change targets need Nuclear to achieve net zero. Policy Makers are embracing Nuclear (which we haven’t seen before). Asia’s nuclear expansion is beginning to move beyond the region into Europe & America. Energy security is also driving growth (geopolitical tensions).
The CEO made the comment that “Demand for nuclear power…is driving the best fundamentals we have ever seen for the nuclear fuel market.”
Acquisition of Westinghouse Electric for $7.9B with Brookfield Renewable where Cameco will own 49% and Brookfield will own 51%. The acquisition was announced a year ago in Oct 2022, and it just received approval from regulators last week and is expected to Close this week.
- Cameco will finance its share of the acquisition with $600M Term Loan and available cash. SOOOOO ONCE THIS CLOSES CAMECO’S BALANCE SHEET SHOULD CHANGE SIGNIFICANTLY. But it is an interesting acquisition as it provides more nuclear capabilities to the company including energy system and reactor technologies, engineering, manufacturing and more.
To Conclude:
Personally, I like the long-term trend of Uranium and its importance to combat climate change and ensure countries with energy security. But over the next decade, I have no idea if this will translate into positive stock performance. Now it appears that there are some tailwinds for the sector…. But at the end of the day… the stock is tied to the price of Uranium and its balance sheet is about to change drastically following the closing of the Westinghouse Electric acquisition. And we cannot forget that from 2004-2020, Cameco wasn’t a great investment driven by weak market conditions…. So at the end of the day… if someone thinks the price of Uranium will continue to perform well over the long term, you could consider Cameco.