CAMECO: 1Q2017 results overview

Altynay IbraimovaMay 03, 2017

In 1Q2017, Cameco revenue decreased by 4% yoy, mainly due to a decrease in the price of uranium sales by 18% yoy to $34.43/ lbs. Despite the fact, that the Company maintains its forecast for the price of uranium at the level of $49/lbs, we note a decrease in the consensus of Bloomberg's forecast by an average of 15% to $ 40/lb-$52.2/lb in 2017-2018, respectively, against $48.8/lb-$58.7/lb, predicted earlier. Due to expectations of a less rapid recovery in uranium prices, we are lowering our 12M target price to CAD16.39/share. At the same time, we maintain our view on the high demand for uranium in the long term, and therefore we keep our "Buy" recommendation.

The results of 1Q2017 are not encouraging. Last week, Cameco reported the results of 1Q2017, which, in our opinion, were below the market expectations. At the same time, it is worth noting that historically in the results of Cameco there is a seasonal cyclicality, where high sales volumes occur in 2Q-3Q.

In the uranium sales segment, which accounts for 66% of total revenue, the revenues were down 25% yoy due to low uranium prices. So, in 1Q2017, the average price of uranium sales was $34.43/lbs, down by 18% yoy and which is significantly lower, than our expected level of $ 48.8/lbs. Nevertheless, the Company keeps its forecasts for the average price for 2017 at $49/lb.

In the segment of fuel services, the decrease in revenue (-8% yoy) is due to lower sales volumes (-30%), compared to 1Q2016, while the average price, on the contrary, increased by 27% yoy.

In the NUKEM segment, uranium supplies in 1Q2017 significantly exceeded volumes of 1Q2016 (23-fold), and rose to 2.3 mn lb, which resulted in a 39-fold increase in the revenue from the NUKEM segment. At the same time, in the NUKEM segment in 1Q2017 there was no gross profit due to a comparable growth in production costs because of inventory write-offs.

The cost of sales (excluding depreciation) in the reporting period was $295mn, an increase of 18% yoy, partially offset by a decrease in administrative expenses (-22% yoy) and exploration costs (-33% yoy). The Company received a loss from operating activities of $ 2.6mn. Net loss for 1Q2017 was $ 18.1 mn against a profit in year earlier of $ 77.6 mn.

We decrease our 12M TP to CAD16.39/share, preserving recommendation to BUY. In response to the expectation of the lower uranium market prices in 2017-2018 compared to previous forecasts and negative dynamics of the average selling prices of Cameco in 1Q2017, we are lowering our 12M target price to 16.39 CAD. At the same time, taking into account the prospects for the restoration of high demand for uranium in the long term and taking into account the leading position of Cameco among uranium mining companies, we maintain our Buy recommendation on Cameco.

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