TSX:CCO - Post Discussion
Post by
retiredcf on Dec 20, 2023 10:10am
RBC
Their upside scenario target is $95.00. GLTA
Outperform
TSX: CCO; CAD 58.37; NYSE: CCJ
Cameco Corporation
Investor day highlights Westinghouse acquisition and strong position in growing nuclear sector
Our view: We think Cameco's investor event did well highlighting the company's strong position within a growing nuclear sector, with top-tier assets across the nuclear fuel cycle and the complementary investment in Westinghouse. However, the lack of new news on the day may have disappointed some investors looking for catalysts such as long-term targets or contracting developments. For a comprehensive deep dive into our positive thesis on Cameco, please see our report "RBC ImagineTM: A nuclear champion for the energy transition" published November 13, 2023.
Key points:
Westinghouse a highly complementary investment, with long-term growth potential: Westinghouse CEO Patrick Fragman outlined the company's strong position in the industry, with touch points across ~50% of the global reactor fleet and new reactor technologies, which should drive long-term growth. While Cameco has guided to Westinghouse core business CAGR at 3.6%, in-line with growth of the nuclear installed base, Mr. Fragman and Cameco management noted this may be a conservative estimate. We currently estimate Westinghouse core business revenues and EBITDA grow at 5% CAGR, given the company's strong position within Western-aligned regions where we see significant reinvestment into the nuclear fleet. Additionally, Mr. Fragman highlighted long-term growth opportunities with the AP1000 and AP300 reactors that are being widely considered for new builds complemented by the developing eVinci microreactor that saw its first customer signed recently (Saskatchewan government) with a broader commercial roll-out later this decade.
More broadly, Cameco highlighted Westinghouse as highly complementary to the uranium and fuel services segments. Financially, Westinghouse provides stable cash flows that allow for more flexibility with Cameco's core uranium segment and can fund long-term growth. Operationally, Westinghouse helps Cameco win business with utility customers through vertical product offerings and improved relations. For example, 25 of the 33 VVER reactors outside of Russia signed fuel agreements with Westinghouse which provided long-term contracting opportunities for Cameco.
Core uranium and fuel service businesses should benefit from tight market, contracting strategy: Cameco highlighted the company's top tier assets in uranium mining, conversion, and fuel fabrication, which should all benefit from a tight nuclear fuel market and long-term demand growth. Management outlined the company's contracting strategy to layer sales into the non-discretionary long-term market with base-escalated with market-related contracts that provide upside to market prices and downside protection. In particular, we thought management did well explaining the rationale for this strategy as the best path to realizing long-term value through both the fuel cycle and the commodity cycle. Market commentary noted utilities increasingly focused on upcoming supply deficits, although contracting activity is still in the early stages of a market cycle as contract volumes have yet to reach replacement levels. Cameco can expand and extend production at McArthur River and Cigar Lake, but the company remains disciplined and will contract volumes before adding capacity.
Reiterate Outperform, $70 PT: We have made no significant changes to our estimates.
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