Yellow Cake a buy on 'resuscitated' uranium market, says Berenberg

Analysts at Berenberg upped its target price on uranium specialist Yellow Cake on Wednesday, pointing to a "resuscitated spot market" and rapidly rising uranium prices.

Berenberg, which reiterated its 'buy' rating and upped its target price on the firm from 254p to 273p, felt that its forecasts were set at a level that was "realistic rather than being a stretch target".

"It is positive to see greater momentum in the uranium price, debunking the view that this may be a false dawn for the spot price," analysts wrote. "With our 2018 year-end commodity price forecast now lagging the spot price, we update our uranium price deck, which in turn increases our short-term price target."

Analysts noted that their long-term target price of 362p for 2022 remained unchanged as, while the resuscitation of the spot market was "clear to see", pricing remained "far from a sustainable level".

Berenberg feels that, as uranium mines come to the end of their record-high long-term fixed-price contracts over the next two-to-three years, they will start to receive spot pricing that, at current levels, will result in mine closure and a tightening of supply.

"The tighter supply will result in an increase in the spot price, and one would expect a rational market to show rising pricing ahead of potential mine closures to ensure sustained supply."

All in all, Berenberg said Yellow Cake's shares "continue to trade at a discount to the next asset value", leading it to believe the group's current share price offered a "compelling entry point into the rising uranium price".