CA - Cameco Corp. Q2 Financial Results Rather Underwhelming

2023-08-03 01:01:51 ET

Summary

• Cameco Corp. reports Q2 financial results with increased revenue outlook for 2023.
• Concerns arise over the investigation of Cameco's deal to acquire Westinghouse Electric by Britain's competition regulator.
• CCJ stock has experienced volatility but has benefited from the rally in uranium prices.
• A Hold for the long-term despite possible short-term oscillations.

Introduction

I last covered Cameco Corp . ( CCJ ) in May 2021 and rated the company as a Hold. Since then the total return has been around 80% which is not too shabby.

There is a global drive for clean energy and with renewed enthusiasm and interest in nuclear power is gaining momentum. Examples of this is that the UK are talking about building eight new reactors as part of their clean energy and energy independence plan, along with France who are targeting fourteen new reactors. This all bodes well for those who have and mine uranium and Cameco certainly does that.

Cameco Corp. Brief Description

In 2021, Cameco a publicly traded company since 1991 was ranked second out of the top ten companies which produced about 90% of the world's uranium according to the World Nuclear Association as the chart below depicts

Cameco has upwards of 469 million pounds in proven and probable mineral reserves and the capacity to produce around 30 million pounds on an annual basis. Their uranium assets stretch from Canada, through the United States, across to Kazakhstan and Australia as the map below indicates.

Cameco operates some of the highest 'grade' of uranium mines in the world, both of which are situated in the northern Saskatchewan; McArthur River/Key Lake and of course the world famous Cigar Lake where production has topped 104 million pounds since May 2015

The Athabasca Basin in northern Saskatchewan, Canada, is home to two of the highest-grade mines in the world - Cigar Lake and McArthur River/Key Lake, operated by Cameco.

It is interesting to note that mineral rich Africa does not appear in their sphere of operations. There is a myriad of reasons for this including geo-political risk. Now according to the World Nuclear News the country known as Niger is undergoing some political change as General Abdourahmane Tchiani declared himself the new leader of Niger and deposed the elected President Mohamed Bazoum.

Such sudden political change casts a shadow of uncertainty over Niger's ability to mine and export uranium which is the country's second largest export and accounts for around 5% of the world's uranium.

This news hasn't had much of an impact on the price of Uranium; however, according to Reuters , the spot price of uranium edged up to $56.25 a pound on Monday from $56.15 a week earlier.

Cameco One Year Chart

As we can see from the chart below it has been a volatile year for Cameco Corp., however, as the debate for a carbon neutral goes on the providers of nuclear energy as part of a diverse energy basket appear to be gaining in popularity.

Cameco has made great progress gaining 61% in seven months as it rallied from around $21.00 to around $34.00 of late. At this point we need to exercise a little caution as this move could be 'too far and too fast' for some investors and they wish to take some of their profits off the table.

Uranium One Year Price Chart

Uranium was priced at around $48 per pound at the start of the year and is now trading at around $56 per pound, registering a gain of around 16%. Cameco has certainly benefited from the rally in its underlying commodity so the future looks brighter than it has done for some years.

Financials

Cameco has a market capitalization of $14.72B, a 52-week trading range of $21.02-$34.04, a P/E Ratio ((TTM)) of 113 and an EPS ((TTM)) of 0.30. The liquidity is good with an average volume of 4,356,669 shares traded per day enabling Speculators, Day Traders, and Options Traders to enter and exit this stock comfortably.

Looking ahead the EPS ((FWD)) is 0.68 and the PE ((FWD)) is 50.91 which is an improvement on the current position 109 for the PE which should be more attractive to both investors and speculators who are interested in this sector of the market.

Today we have the Q2 results which I will briefly cover below: We start with a quote from Tim Gitzel, Cameco's president and CEO who said the following:

Our financial performance, which reflects the expected quarterly variation in our contract deliveries this year, is benefitting from our strategic decisions, with gross profit improving as we transition to our tier-one run rate. The significant momentum seen in the nuclear energy industry and the heightened supply risk caused by geopolitical developments are translating into increased opportunities for Cameco. As a result, for 2023, we have increased our consolidated revenue outlook, which is primarily driven by higher expected average realized prices under our contract portfolio and increased deliveries in our uranium segment

The chart below depicts Cameco's financial results where we can see that the six months ending June 2023 compared with the same period in 2022 the Revenue was up 22% and the Gross Profit was up 95%. For the three-month period ending June 30, 2023 the net earnings are $14 million and the adjusted losses are $3 million. Also worthy of note is that Revenue of $482 million is down on a Y/Y basis by 14%.

I need to dig into this a tad more as so far it is not overly impressive.

There are outside factors weighing on Cameco, such as the Reuters concern about Britain's competition regulator said on Wednesday it is investigating Cameco Corp. ( CCO.TO ) and Brookfield Renewable Partners' $7.9 billion deal to acquire nuclear power plant equipment maker Westinghouse Electric.

The UK's Competition and Markets Authority ((CMA)) said it has invited comments on the deal from interested parties

This might be a storm in a teacup but this sort of hindrance can slow progress somewhat and needs to be taken seriously.

Taking a quick look at Seeking Alpha's Quant Ranking Cameco is ranked in Industry at 4 out of 17 with a rating of Hold which for long term investors is about right. Although the Quants have three other companies above Cameco they do not have the size in terms of market cap which is $14.95B for Cameco and the company in first place has a market cap of $2.47B. As the demand for uranium grows the size will matter as Cameco have the pounds in the ground and the ability to deliver from relatively safe jurisdictions

Cameco Corp. trades on the NYSE symbol CCJ and in Canada on the TSX symbol CCO.

Conclusion

If you are new to the uranium mining sector then Cameco Corp. would be a good place to start your portfolio

Be mindful that this is a volatile sector of the market and not for those who are faint-hearted.

Cameco, from a chart perspective, does look overbought at the moment so a lower entry price might be worth waiting for, however, the Green Dream could drive this stock to higher price levels in the medium to long term.

As an insurance policy to protect your position from a short-term sell-off in Cameco an acquisition of a few Put Options could offset some of the losses should there be any.

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