Bullish on nuclear? This global stock with 55% upside offers uranium price exposure, BoA says

Published Thu, May 11 20238:28 PM EDT

Bank of America expects shares of Yellow Cake Plc , a U.K. company that provides investors with direct exposure to uranium price movements, will rise by 55% over the next 12 months. Unlike traditional mining companies, Yellow Cake's business model is "simple" and operates "without exploration, development, mining and processing risk," according to the investment bank. The company, trading as YCA on the London Stock Exchange, raises equity and uses it to purchase uranium at a pre-determined price from Kazatomprom, the world's largest uranium producer. The purchased uranium is then stored in secure facilities in Canada and France. YCA-GB 1Y line "We are bullish on YCA, which gives investors a clean leverage to moves in the value of the underlying uranium commodity," said Bank of America's analysts led by Yuyang Zhang in a research note to clients on May 10. The value of Yellow Cake's shares is closely tied to the price of uranium, as it re-values its holdings based on the current spot price. This means that if uranium prices rise, so should the value of Yellow Cake's shares. The company attempts to buy more uranium when its shares trade at a premium and buy back shares when they trade at a significant discount. This strategy enables the YCA to acquire exposure to uranium at a discount to the commodity spot price. Bank of America is also bullish on uranium, predicting its price will be $75 per pound in the third quarter of 2024. "We think that nuclear power and uranium have a role to play in solving the twin challenges of decarbonization and energy security," the analysts added. With uranium production concentrated mainly in Kazakhstan and Canada, the bank expects supply constraints to continue, further supporting uranium prices. Demand for uranium is expected to rise, especially in China, which plans to increase its nuclear power capacity by 40% from 2021 to 2025 as part of its goal to become carbon neutral by 2060. According to the World Nuclear Association, China has 55 operable reactors and 23 reactors under construction and is expected to build 150 new reactors by 2035. However, the investment bank did caution that the company is not immune to geopolitical and supply-side risks despite Yellow Cake's unique business model. The current economic sanctions on Russian companies could potentially impact the global nuclear fuel market, as Russia owns a significant portion of global uranium conversion and enrichment capacity.