Cameco has decreased the loss by 66% in 1Q2017

Altynay IbraimovaAugust 02, 2017

Last week Cameco published its operational and financial results for 2Q2017.

Volume of uranium production decreased by 1%, mainly due to decreasing production at Inkai and suspension of production at Rabbit Lake, partially compensated by high volumes at McArthur and Cigar Lake. Revenue from uranium segment has decreased by 7% y/y due to the decline of average sale price by 17% y/y  - from $42.52/lb to $35.5/lb in 1Q2017, in Canadian dollars the price also decreased from CAD57.16/lb to CAD47.36/lb. Costs decreased by 5% is linked to the higher costs at Rabbit Lake within 2016; nevertheless that was not enough for a positive net effect. As a result, gross profit from sales of uranium amounted to CAD128mln, decreasing by 14% y/y.

In segment of fuel services a decrease in revenue by 2% was observed associated with low sales volume (-17% y/y). At the same time, the strengthening of average sale price by 16% y/y was able to partially compensate for volume reduction. Low sales volume in turn entailed the decline in costs by 9%, increasing the margin of gross profit for the year from 23% to 28% in 1Q2017.

NUKEM segment demonstrated an impressive growth in uranium sales by 104% in 1Q2017 due to more often acceptable terms of spot trading in contrast to 2016. Though, the segment’s revenue increased only by 27% to CAD166mln due to the decline in average prices by 34%, and considering comparable growth of cost price (+27%), segment’s gross loss increased by 50%.

Fig. 1. Segment results

Uranium

unit

1Q2016

1Q2017

y/y

Production

mln lb

14

13.8

-1%

Sales

mln lb

10.5

11.8

12%

Average sales price

CAD/lb

57.16

47.36

-17%

Revenue

CAD mln

603

558

-7%

         

Fuel services

unit

1Q2016

1Q2017

y/y

Production

mln kgU

5.9

4.8

-19%

Sales

mln kgU

5.2

4.3

-17%

Average sales price

CAD/kgU

27.06

31.5

16%

Revenue

CAD mln

140

137

-2%

         

NUKEM

unit

1Q2016

1Q2017

y/y

Sales

mln lb

2.4

4.9

104%

Average sales price

CAD/kgU

52.24

34.24

-34%

Revenue

CAD mln

131

166

27%

Source: Company data

On the whole, having received the operational profit of CAD144mln against the loss a year earlier (CAD114mln), the Company managed to substantially decrease operational expenses (-28% y/y). Net loss decreased by 66% and amounted to CAD20mln.

Our view

We assess the results of CAMECO in 1Q2017 as moderately positive. Having a decline in total revenue by 1.4%, the Company managed to obtain positive EBIT, the margin increased from -13% in 1Q2016 to 5% in 1Q2017. The annualized costs of the company are 9% below our forecast, which is mainly due to low sales volume and overall justifies our expectations. The shares of CAMECO are currently traded with a discount of 28% to our target price, and we maintain the recommendation to “Buy” the shares of Cameco.