Cameco’s first quarter sales grew 7% to $845mn, with double-digit growth in Uranium sales more than compensating for a small decline in Fuel Services. Most of the uplift for Uranium was volume-based, with prices up 2%.
Underlying cash profit (EBITDA) rose 44% to $509mn, with strong performances in Uranium and the Westinghouse joint venture partially offset by a decline in Fuel Services.
Free cash flow fell from a $54mn inflow to a $100mn outflow, reflecting a deterioration in cash management and an increase in capital expenditure. Net cash was $0.1bn.
Guidance for broadly flat production in Uranium and Fuels Services, plus an underlying cash profit contribution of around $0.4bn from Westinghouse remains in place. Cash flow for the full year is expected to be ‘strong’.
The shares were up 2.9% in early trading.
All figures are in Canadian dollars unless otherwise stated
Our view
Cameco had an uneventful start to the year, but news that it was tracking comfortably towards its full-year production targets was taken positively by the market. Raw Uranium prices moved marginally in the right direction, but refined fuel prices went backwards due to currency movements and contracts agreed last year.
However, Cameco takes a long-term view of the Uranium market, meaning it’s not rushing to extract all of its reserves at once. Rather, it prefers to negotiate longer-term contracts that anticipate a sustained increase in demand and growing supply shortfall. The oil price shock seen this year should provide a tailwind for pricing, as countries seek to accelerate alternative sources of energy.
It has several assets in attractive jurisdictions, which should help it match demand as fuel requirements ramp up from a robust global pipeline of new reactors. We admire the discipline, but it means the immediate scope for higher uranium sales is limited.
However, we see the greatest scope for value creation to be sitting within the Westinghouse joint venture, underpinned by an US$80bn framework with the US government to deploy new reactors. That also raises the prospect of a separate IPO of Westinghouse.
There are no guarantees, but the deal sets out a target valuation of at least $30bn, nearly seven times the price paid by the joint-venture partners in 2023. That’s a tantalising prospect, although it’s by no means a given. For now, our focus is fixed on the impact on Cameco’s financial performance. If the framework delivers, we should see a significant uplift while providing a long-term boost in demand for Cameco and Westinghouse’s other divisions.
Cameco’s position as the leading operator of Global Laser Enrichment technology which converts stockpiles of waste uranium into usable product is another exciting but early-stage growth driver to keep an eye on.
The balance sheet is strong, with cash flows in 2025 much improved, albeit with the caveat that cash receipts from Westinghouse are expected to fall in 2026. That’s paved the way for an improved albeit modest dividend program, though no shareholder returns are assured.
Despite softening attitudes, Cameco’s also exposed to political risk. We think policymakers will remain on a more nuclear-friendly course, but sentiment could change.
As it stands, Cameco looks well-placed to capitalise on the ongoing nuclear renaissance. The market’s recognised the opportunity too, with the valuation pricing in a sustained period of strong growth. That’s supported by market forecasts that underlying pre-tax profits will more than double from this year’s levels by 2028. That looks achievable but there’s plenty of execution risk which investors should be willing to tolerate.
Environmental, social and governance risk
Mining companies have high ESG risk. Emissions, effluents & waste and community relations are key risk drivers in this sector. Operational carbon emissions, resource use, health and safety, labour relations, and bribery and corruption are also contributors to ESG risk.
Cameco’s overall management of material ESG issues is strong.
There is board level responsibility for overseeing ESG issues, however, ESG reporting is not in accordance with leading reporting standards. Executive remuneration is explicitly linked to sustainability performance targets. Scope 1 and 2 emissions are disclosed and carbon intensity tracks below the industry average. There are also programmes in place to reduce own emissions, with targets and audits. Cameco has not been involved is any major community relations controversies.
Cameco key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.