1Q2019 financial results. Reflecting weaker demand for uranium during 1Q2019, the company's revenue declined by 32% yoy. Operating loss amounted at $26mn against a profit of $23mn a year earlier. Net loss was $18mn versus net profit of 55mn in 1Q2018. The company has maintained its annual income forecast in the range of CAD1650-1800mn and still expects to meet the CAD110-120mn administrative expenses and CAD13mn exploration expenditures, without expecting much activity in current projects. At the same time, the average selling price according to the company's expectations will decrease from the previously planned CAD46.10/lb to CAD44.20/lb and the average unit cost will decrease from CAD41.00-43.00/b to CAD39.50-41.50/lb.
The conservative price forecast is maintained. We are still laying 60% spot prices, given the contractual nature of Cameco’s sales. In terms of CAD, taking into account the forecast value of the USDCAD rate in the range of 1.26-1.29, we expect that the average selling price of uranium from Cameco in the future will grow moderately. Despite the downward trend in the number of nuclear reactors around the world, China has seen an increase in commissioned reactors, which is why forecasts for the future development of nuclear energy in China remain optimistic. At the same time, uncertainty about the launch of nuclear reactors on a scale capable of raising spot prices for uranium above $40/lb, persists, giving ambiguity in the assessment of uranium mining companies.
Recommendation “Hold” with 12M TP of CAD14.9/share. Company’s uranium production on currently operating Cigar Lake mine will continue until 2029 y. Production on McArthur River has even longer term of exploitation – until 2041. The dynamics of production at the company's largest assets after the forecast period, according to our estimates, corresponds to a growth rate of 1% after 2026. Our new target price is CAD14.9/share. The low premium (10%) is justified by weak market conditions for Cameco in the current period, while in the long-term horizon the expected increase in demand for uranium gives the company advantages due to the high concentration of the uranium production market. We maintain our "Hold" recommendation on Cameco shares.
