Yellow Cake (LON:YCA) holds uranium and provides direct equity exposure to this neglected energy source.

Uranium has been in a bear market for a decade but is that about to change? It has fallen behind other recovering commodities, and an increase in spot price here would lead to an increase in YCA's net asset value.

This is a low-cost source of renewable energy. Structural shifts towards these renewable energy sources and greater global electricity demand suggest that it has to be a part of the mix going forwards. Indeed ascending powers like China and India are building many tens of new reactors.

But languishing spot prices mean uranium remains effectively below its cost of production. With a lack of new mine capacity, recovering demand could see uranium prices rising sharply in the medium-term.

Yellow Cake was incorporated in 2018 on the view that uranium is structurally undervalued. It was pitched to the Stockopedia Investment Club on the 19th of January 2021 at a share price of 230p.

The Club currently has no exposure to the Energy sector - but is a company that simply offers exposure to a certain asset class the kind of company the SIC wants to invest in?

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Summary

Bull points: direct exposure to the uranium spot price; lack of new mine production + rising demand suggests favourable outlook; YCA has been buying back shares; Balanced RiskRating could offer portfolio diversification benefits

Bear points: gap to NAV has closed; technology makes uranium last longer and holds back prices; political risk (Fukushima); opaque market dominated by a few key players; no operating aspect - YCA just holds uranium


Profile

About the Stock:

Yellow Cake is a small cap holding company listed on AIM and headquartered in Jersey. It has a market cap of c£200m and is classified in the Energy sector as part of the Uranium industry group.

The shares have good liquidity, with an exchange market size of 3k allowing for a c£7,000 buy or sell fairly easily.

The StockRank is 84 (Q Rank 49; V Rank 87; M Rank 73). It has a Balanced RiskRating and is currently Style Neutral.

About the Opportunity:

  • The medium term supply-demand dynamics of the uranium market look favourable for holders of uranium
  • It has lagged other recent commodity reratings and the low spot price makes for…

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