Cameco (CCO) Com NPV

Cameco reported first-quarter revenue of $638mn, down 8%. Underlying cash profit (EBITDA) rose 53% to $345mn, driven by performance from the largest business segment, Uranium. Reported net profit showed a loss of $7mn, driven by costs associated with the recent acquisition of a 49% stake in Westinghouse (a nuclear plant technologies, products and services business).

Uranium production rose 29% over the quarter but sales volumes fell 25%, in line with typical delivery patterns. The average realised price on Uranium sales was up 27%, a reflection of the increase in price from market-related contracts. The fuel services division saw similar trends.

Net debt was broadly flat at $1.2bn and free cash flow of $23mn was down from $188mn.

2024 guidance remains unchanged, looking for revenue of $2.85-3.00bn.

The shares fell 3.7% in pre-market trading.

Our view

Cameco is a company at the epicentre of the clean energy transition. This Canada-based giant is engaged in providing uranium fuel to generate clean, reliable baseload (the minimum amount of electric power needed to be supplied to the electrical grid at any given time) electricity around the globe. The company also offers nuclear fuel processing services, refinery services and it manufactures fuel assemblies and reactor components.

Attitudes towards nuclear energy show signs of shifting in Cameco’s favour. Policymakers are more proactively proposing nuclear as an important part of energy plans. In some cases, full-scale anti-nuclear stances are being reversed. We think the market is primed to grow from here. Not only because of the helpful megatrend of cleaner energy solutions, but because there is limited uranium supply coming online at a time when demand is increasing.

There are many reasons for this heightened demand. A big one is geopolitical tensions, especially in Russia, meaning countries are looking for ways to reduce reliance on the region for energy production.

Cameco is primed to benefit. It has several approved and built assets in less volatile regions ready to fire up. Almost 90% of uranium consumption is in countries with little-to-no primary production and Cameco has controlling ownership of one of the world’s largest high-grade uranium reserves.

Revenue jumped 39% to $2.6bn in 2023, partly because of rising uranium prices and volumes. We don’t expect the same jump this year, but there are still price and volume tailwinds to play out. We would urge investors not to follow quarterly numbers like a hawk, the industry is inherently lumpy, so longer term trends are what we pay attention to. Contracts tend to be long term in their nature too, so it can take some time for higher prices to fully reflect in results.

Cameco is exposed to political risk. We think policymakers will remain on a more nuclear-friendly course, but this isn’t guaranteed and could change, which would affect Cameco. Any nuclear disaster events would badly hurt the valuation, too. Also, uranium is a commodity, and that makes Cameco exposed to a cycle it has little control over.

Ultimately, rising concern about energy supply and a re-evaluation of nuclear energy's role means we’re at an inflection point for uranium demand. Cameco is a well-placed name to capitalise on this, and its high barriers to entry keep competitors at bay. Although share prices can fall as well as rise.

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