It was previously $45.00. GLTA
EQUITY RESEARCH
A Step Change And A Step In A New Direction
Our Conclusion
We resume coverage of Cameco Corp following the closing of its acquisition
of a 49% stake in Westinghouse Electric. In our view, the transaction has
elevated Cameco from a tier-one uranium producer with a strong uranium
conversion business into a one-stop shop for utilities (and nations) looking
for reliable nuclear fuel supply. This transaction is a step change to
Cameco’s outlook, and further extends its downstream uranium and nuclear
capabilities. Cameco has created a wide moat within the nuclear energy
space, and we now view Cameco as a go-to name in nuclear, compared to a
go-to name in uranium prior to this transaction.
We have updated our model and incorporated Westinghouse within our
valuation, as well as refreshed our uranium price forecasts. We reinstate
coverage with an Outperformer rating, increase our price target to C$68.50,
and name Cameco our Top Pick. Note that a virtual Investor Day is
scheduled for December 19.
Key Points
A Leader In A Strong Sector. Nuclear energy continues to garner new
interest with regards to a global transition to clean energy. We expect
Cameco’s increased scale, diversity of revenue sources, increased stability
of earnings, and greater exposure to margins can be extracted through the
entire nuclear fuel cycle and position it well at a pivotal time, which appears
to be a nuclear renaissance. We note Westinghouse as a leader in its own
regard within the technology and service ends of the nuclear fuel cycle, a
market with an addressable market of roughly C$11B.
Right Place, Right Strategy, Right Time. Commodities attract cyclicality,
but we view positive momentum in the nuclear sector as a multi-year event
after an extended bear market following the Fukushima tragedy. Cameco
has set the foundations to be a global leader within the sector, servicing
western-aligned nations for decades to come with its strategy to vertically
integrate while maintaining ties to the epicentre of the nuclear sector’s
growth (i.e., China). Cameco’s moat continues to widen with the acquisition
of Westinghouse, as barriers to entry increase for its competitors given the
regulated nature of the sector and government support required. Uranium
has been the best-performing energy commodity year to date, with minimal
signs of exhaustion in the momentum of prices thus far.
We note that higher uranium prices have triggered financing and deal activity
amongst developer companies. Within this context, we expect Cameco can
be both a potential buyer looking for its next leg of growth within the
Athabasca Basin and a potential seller of its U.S. ISR operations.
Uranium Outlook Refreshed. We have refreshed our supply-demand
model, and we now expect LT Uranium prices to average US$72.50/lb in
2024 and exit next year at US$80/lb, while we increase our long-term LT
contracted U3O8 price to $75/lb, from $60/lb previously