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Yellow Cake share drift offers buying opportunity, says German bank

The company, which invests in uranium, floated on AIM last summer

Berenberg -
The price of the metal has been relatively stable in recent weeks

The well-followed mining team at German bank Berenberg reckons investors are missing a trick with Yellow Cake PLC (LON:YCA), the uranium investment vehicle.

It pointed out that the company’s discount to net asset value has widened for no discernible reason.

The market for the radioactive metal has remained fairly static at US$25 per pound in the last three weeks, yet Yellow Cake’s share price has drifted 11% in that time.

“A discount of this scale represents an attractive buying opportunity and it should be noted that Yellow Cake could work to close this discount via a share buyback,” said Berenberg in a note to clients.

“This is not yet planned or announced, but feels logical and is within the company’s mandate of optimising its uranium/share ratio.”

Price target of 280p

The bank reiterated its ‘buy’ recommendation and 280p a share price target. The valuation represents a 40% premium to the current price of 201p (up 2p).

The group floated on AIM last July after raising US$200mln from the sale of 76mln new shares at 200p apiece in an initial public offering.

It is backed by Bacchus Capital, the corporate finance boutique set up in 2016 by a group of senior bankers led by Peter Bacchus.

The cash raised was used to buy 8.1mln pounds of uranium from Kazakstan’s state-owned firm, NAC Kazatomprom JSC, one of the world’s largest uranium producers.

Yellow Cake paid US$21.01/lb (per pound), a discount of about 8% to the then spot price.

On 1 June 2019, Yellow Cake announced that it had taken delivery of a further shipment of 1.175mln pounds of uranium from Kazatomprom, after exercising its existing option.

Quick facts: Yellow Cake PLC

Price: 196.6 GBX

AIM:YCA
Market: AIM
Market Cap: £173.26 m
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