What are we looking for?
With the global push to reduce fossil-fuel emissions, the energy crisis in Europe and the European Union’s labelling of nuclear plant investments as “green” earlier this year, expect growing demand for nuclear power. What are we seeing for valuations for stocks in this space?
The screen
We used StockCalc’s screener to select the top 10 uranium stocks by market capitalization listed on the TSX and TSX Venture Exchange. We then used StockCalc’s valuation tools to calculate fundamental (or intrinsic) valuation for each stock to see whether it is undervalued or overvalued compared with its price.
Overview of the techniques used:
- Discounted cash flow (DCF value) is a valuation technique in which cash-flow projections are discounted back to the present to calculate value per share;
- A price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;
- An adjusted book value (ABV) is calculated by multiplying book value per share by its 10-year average price-to-book ratio.
If we have analyst coverage, we look at the consensus target price.
More about StockCalc
StockCalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. StockCalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to StockCalc using the promo code Globe30, which offers a 30-day free trial and special pricing for the second month.
What we found
You can see in the accompanying table the percentage difference between each stock’s recent closing price and its intrinsic value. The “StockCalc Valuation” column is a weighted calculation derived from the models and analyst target data, if used.
This sector comprises companies that are engaged in the production of uranium or the uranium royalties or investing business. There are about 440 nuclear reactors worldwide that require 74,000 tonnes of uranium oxide concentrate each year. Mines in 2021 supplied 77 per cent of the utilities’ annual requirements with the balance made up from global stockpiles. The World Nuclear Association’s Nuclear Fuel Report shows a projected 27-per-cent increase in uranium demand from 2021 to 2030 and a 38-per-cent increase between 2031 and 2040.
We see concentrations of these companies where the resource is found: Australia has the largest concentration of uranium reserves followed by Kazakhstan, then Canada. Cameco is the only stock on this list paying a dividend and nine of the 10 stocks are down over the past 12 months.
Let’s look at a few of these companies, including a uranium producer, an investor and an explorer:
Cameco Corp. CCO-T, one of the world’s largest uranium producers, and Brookfield Renewable Partners LP announced on Oct. 11 they would acquire nuclear power plant equipment maker Westinghouse Electric Co. in a US$7.9-billion deal. Cameco said it would fund its 49-per-cent share of the purchase through a mix of cash, debt and equity; the following day, its stock price dropped 13 per cent. Our models for Cameco (DCF value, price comps, ABV) are below the current price and weighted StockCalc valuation – and significantly below where analysts see the stock price in 12 months, although we can expect those analyst targets to fall in the wake of last week’s announcement.
Sprott Physical Uranium Trust U-UN-T invests in uranium-based assets, including uranium oxide and uranium hexafluoride. The company stores its uranium deposits at uranium conversion facilities. Our valuation models for this type of firm rely heavily on comparables and ABV, which are on either side of the current price.
IsoEnergy Ltd. ISO-X is engaged in the acquisition, exploration, and evaluation of uranium properties in Canada. This summer it completed diamond drilling, airborne surveys and claim-staking on three properties in the Athabasca Basin region. All of our models for IsoEnergy are below the current price while the analyst target price is above.
Investing involves risk. StockCalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis.
Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.