Stock Pitch - Yellow Cake (LON:YCA)

21st Jan '21 by Jack Brumby

65 comments 8982 reads

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?

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 a…

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Alphaflight

6th Sep '21

This is true although I can't imagine why anyone would buy YellowCake now that Sprott have just come in to the market place and allowed for physical Uranium spot price purchases. Sprott was the largest buyer of physical silver of 2020, I really wouldn't be surprised if they become the largest buyer of physical uranium in 2021...

gus 1065

As and when U.Un /Sprott lists in the US I can see it taking a bigger piece of the global uranium investment pie, but as it stands they’re roughly the same order of magnitude (both market caps c.£500m, Sprott currently about 30% bigger than Yellow Cake (LON:YCA) ). Given both are essentially simple stockpiles of uranium (Yellow Cake (LON:YCA) will claim a USP in its relationship with Kazatomprom, Sprott is a much bigger player in commodities/fund management generally and being USD denominated doesn’t have the added complication of currency translation issues) I can see there is room for both.

Personally, it’s more expensive/cumbersome to hold/trade Canadian stocks so I will probably stick with Yellow Cake (LON:YCA) although I’ll be watching both closely and will be interested to compare their respective costs going forwards (Sprott charge a management fee of 0.35%pa plus expenses; not sure quite what the Yellow Cake (LON:YCA) AIC is but suspect it will be substantially higher) and also their respective discounts/premia to NAV. Sprott is currently at an 11.4% premium (as per their website https://sprott.com/investment-... ) whereas I calculate Yellow Cake (LON:YCA) is at about a 7.6% premium). Hopefully over time smarter players than me will arbitrage out any meaningful difference between the two and keep them on comparable valuations. A bit of healthy competition might also keep Yellow Cake (LON:YCA) honest about their charges. I guess time will tell.

Gus.

Hartshay

aura up another 25% today!

10th Sep '21

"Uranium Soars After Sprott Massively Upsizes Buying Program By $1BN To $1.3BN"

11th Sep '21

I hold substantial stakes in Canadian,US, Australian, Chinese and London listed uranium stocks and they have already made me life changing returns and uranium is only just above$40 a lb! Yellow cake will go up in line with uranium price as it is driven up by sput and probably others. But the major returns are through the miners and explorers. Paying brokerage and foreign exchange fees pale into insignificance against daily gains we have had and will experience in this bull run. This is a once in a generation opportunity. Do your own research . We are still early but the big investment houses are flooding capital into a tiny sector for a good reason.

Tip ..check aura energy on lse over a one bagger in a week with plenty more to run yet.!

Antehelion

15th Sep '21

for anyone wanting some alternative uranium exposure, Power Metal Resources (LON:POW) have just announced an exploration claim in Canada..

https://www.stockopedia.com/sh...

16th Sep '21

"Uranium Stocks Explode As WallStreetBets Goes Nuclear"

Link to article

"As Sprott Goes 'Hunt Brothers' On Uranium, A Copycat Joins The Squeeze To Force An Explosive Move Higher"

mojomogoz

What do you say about the approx 99% dilution over 5 years? Has it been productive?

With so many exploration initiatives globally how will Power Metal Resources (LON:POW) finance progress so as to keep it licenses and progress resources to be able to sell to developers?

There are literally thousands of these types of exploration plays in Canada and Australia that eat up capital and never hi big. If you must invest in these pick ones with decent proven deposits and a rising price on the asset…

Rusty2

4th Mar '22

Surprised to see Yellow Cake (LON:YCA) down 10% this morning and some other Uranium stocks also down, is this to do with the attack on the nuclear power station in Ukraine?

Roodini

As Yellowcakes main supplier of uranium is a neighbour and ally of Russia, its long term contract could be shaky right now!

Thanks but this was known about yesterday? So I don’t understand the large falls today, Geiger Counter (LON:GCL) is down 15%.

6th May '22

$LEU Not a very good 1Q update yesterday, shares are down 25% as I type, I hold, not sure whether to top up or not.

Snowbum

7th May '22

I don't currently hold, I exited fully on 25 Mar as the price fell below $35. The current level of $25 looks to be reasonably well supported but, personally, I'd be wary at this juncture.

Fundamentals are still excellent imo, therefore I will definitely look to re-enter when the chart signals to do so; which it may just have done looking at that pinbar candle from Friday.... Clearly a lot of buying at that level!

However, the liquidity shelf is between $20-$29 so I'd prefer to wait for a break higher out of this zone. It could fall to the $10 area yet dependent on market conditions in the US. At that level I'd be backing up the truck I think.

9th May '22

Sprott recently bought URNM (Sprott Uranium Miners ETF). Current dividend is 7% p.a with the Uranium price dropping. I'd argue that URNM is a good way of gaining leveraged exposure to Uranium.

10th May '22

difficult to buy from the UK unless you fill in all the paperwork to class yourself as a “professional Investor”.

DaviStoVest

The paperwork that I have faced in attaining 'professional investor' status has been pretty minimal and quick and straightforward to complete. I felt comfortable that I ... honestly and truthfully ... met the stated criteria.

I did feel a little uncomfortable that it would have been easy to clear the same hurdle dishonestly and untruthfully. But ... to what lengths are we supposed to go to protect idiots from their own greed-driven reckless stupidity?

11th May '22

Hi Roodini.

Really, I didn't know that.

I bought it via IBKR (Interactive Brokers), I didn't have to fill anything out. Perfectly straightforward.

12th May '22

Ikbr message said something similar for me aswell but I filled in the paperwork for Ajbell to buy it, and watched it crash for the past few weeks

With IBKR, I originally just setup my account to trade everything possible (except futures). It only involved clicking some checkboxes and agreeing to sign my life away w.r.t their derivative instruments (actually now that I think about it, I did have to sit a quick/simple online test for the derivative products).

Stock Pitch - Yellow Cake (LON:YCA)

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Jack Brumby

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