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(Alliance News) - Yellow Cake PLC got a vote of confidence from Berenberg, as the German bank expects uranium prices to be robust looking ahead, despite recent weakness.
Berenberg noted the spot uranium price has weakened around 10% year-to-date, but "supply-side risks and robust demand remain bright spots". Yellow Cake describes itself as a company that provides "investors with direct exposure to the uranium market".
Berenberg analysts commented: "Uranium remains one of our favoured commodities due to attractive supply and demand fundamentals that continue to support the U3O8 (triuranium octoxide) price outlook; we expect the U3O8 price will sustain a rising trajectory over the near term. The spot U3O8 price stands at USD80/lb and, despite this being down by 12% ytd, supply-side risks and robust demand remain bright spots, underpinning our view on the commodity's outlook, with the recent summer doldrums expected to fade following reporting from major producers.
"Against this backdrop, we see a trading opportunity for Yellow Cake."
Berenberg noted that uranium producers Cameco and Kazatomprom backed and raised output guidance respectively in quarterly results released recently.
However, Kazatomprom cut its 2025 outlook, Berenberg noted.
"The guidance cut did not come as a surprise to us, given ongoing operational headwinds, but does give rise to further uncertainty beyond 2025. This highlights a tighter near-term market, in our view, which should push prices higher in turn, underpinned by our expectation of a deficit market for some time," the German bank said.
"The fundamental drivers of higher uranium prices remain intact. These include disrupted supply (we also note the scope for supply disruption due to the US ban on Russian uranium imports, with some near-term exceptions through to 2028), rising demand due to the ongoing rollout of new nuclear reactors to meet net-zero targets (163 new nuclear reactors are under construction or planned) and additional demand in the form of small modular reactors. These drivers, coupled with the expectation of rising contracting from utilities in the medium term as US utility coverage rates drop, underscore a favourable uranium profile supporting higher prices."
Berenberg said the outlook for the uranium market should favour Yellow Cake, and it noted the stock trades a discount to its net asset value, "offering an attractive entry point ahead of a re-rating".
It added: "Yellow Cake remains a pure-play way to gain exposure to uranium prices through its holdings of 21.68 million pounds of U3O8 in storage, and we expect the stock's disconnect versus market fundamentals to close."
Yellow Cake shares traded 2.9% lower at 528.50 pence each in London on Tuesday afternoon.
By Eric Cunha, Alliance News news editor
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