Yellow Cake a buy on 'resuscitated' uranium market, says Berenberg
Yellow Cake
690.00p
16:34 10/05/24
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.
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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".