Analysts at Canaccord Genuity believe uranium equities have “decoupled from the underlying commodity price with little regard to the bullish commentary emanating following the [World Nuclear Symposium] earlier this month.”
“The supply shortfall has not magically evaporated, the global build-out of traditional nuclear has not slowed, but rather accelerated, and the pace of SMR development has, if anything, increased,” they said in a research report released Tuesday. “With our underlying thesis still very much intact (we retain our US$90/lb long-term price forecast) we see a compelling opportunity.”
Calling it “an unconscious uncoupling,” the analysts added: “Uranium equities have defied an improving term price, experiencing an 8 per cent decline year-to-date vs. an 18-per-cent increase in the reported term price. The recent pull-back in uranium equities, amidst a steady climb in the term price, has been highly uncharacteristic and has created the largest divergence (last 10-years) between the Global X ETF (equity proxy) and the long-term price. We believe this decoupling has signalled a breakdown between equities and the underlying price, with the equities appearing oversold, in our view. Average implied prices across our coverage now stand at $61/lb, while the mean P/NAV is 0.65 times. This equates to a 25-per-cent discount to both spot and term, with a number of our names pricing in similar valuation ranges to 12-months ago when spot and term were $65.50 and $61/lb, respectively.”
In a report titled Power required for energy hungry world, the firm predicted prices will continue to improve as supply levels struggle to meet rising demand.
“Our discussions with industry participants at WNA suggest that producers are now quoting largely market-related contracts with $75-$80 floors and $120+ ceilings, with escalators,” the analysts said. “As such, we view the base-escalated price ($80/ lb), as a backwards looking indicator, with most discussions happening at higher price points. This, in our view, has helped put a floor under spot, as it would not make sense for spot to trade at a material discount to term, given the opportunity this presents to traders, utilities, and producers to restock below current LT prices. We are now in a seller’s market, where producers are demanding higher prices. However, there are many utilities who are slow to accept and transact at higher price levels. Effectively, the market is in standoff. Our view is that utilities will eventually have to accept the ‘new normal’ and when this occurs, both term and spot will re-price higher.”
Analyst Katie Lachapelle made a series of target price changes to stocks in her coverage universe. They include:
- Cameco Corp. (“buy”) to $78 from $75. The average on the Street is $75.03.
- Encore Energy Corp. (EU-X, “buy”) to $8.50 from $8. Average: $7.47.
- Fission Uranium Corp. ( “speculative buy”) to $1.65 from $1.75. Average: $2.11.
- Global Atomic Corp. (“speculative buy”) to $2.75 from $3. Average: $3.54.
- Uranium Royalty Corp. ( “speculative buy”) to $6.50 from $6.75. Average: $7.10.
“Our preferred equity exposures are DML, NXE, and EU in North America; PDN, LOT, DYL, and BOE in Australia; and KAP in the UK,” they said.