Cameco's nuclear option

Cameco supplies around 16 per cent of global production from several uranium mines located in North America and Kazakhstan, including McArthur River in Saskatchewan, the world's biggest high-grade uranium mine.

Any assessment of uranium's - and, indeed, Cameco's - prospects must be conducted against the backdrop of the Fukushima Daichii disaster. Prices slumped in the wake of the post-tsunami meltdown, as Japan's remaining nuclear reactors were taken off-line and Germany halted future nuclear energy projects.

However, we take the view that the 56 per cent fall-away in Cameco's share price since its 2011 peak has opened up a buying opportunity. Over the past two years, the group's shares have on average changed hands at a 35 per cent premium to peers on a next 12-month forecast PE basis. That premium now stands at just 4 per cent, suggesting 29 per cent upside from the current share price. Canacco Genuity forecasts an annualised growth rate of 21 per cent for adjusted cash profit between 2015 and 2017, with net debt moving towards a cash surplus over the same period. Admittedly, the group is in dispute with both the US Internal Revenue Service and the Canada Revenue Agency over unresolved tax issues (reflected in the forecast 2016 fall-away in EPS despite rising profits), but market fundamentals are moving Cameco's way.

Demand for nuclear fuel looks set to increase over the medium to long term, regardless of lingering anxieties over nuclear power. Recovery, albeit from a markedly reduced base, is already under way. Last year, consumption growth rates contracted for every global fuel source, with the sole exception of nuclear energy, according to BP's Statistical Energy Review.

Nuclear energy's growth rate in 2014 was well in advance of the long-term average and the power source gained global market share for the first time since 2009. According to the World Nuclear Association, the number of nuclear power reactors under construction is equivalent to a fifth of existing global capacity. And there's another 160 reactors firmly planned, equivalent to half of present capacity. The immediate industry focus is on prospects for the partial restart of Japan's array of nuclear reactors, which accounted for around 11 per cent of global output (and over half of Asia Pacific's) prior to the disaster.