Now could be the time to buy Paladin Energy Ltd (ASX: PDN) shares.
That's the view of analysts at Bell Potter, which have just upgraded the ASX uranium stock.
What is the broker saying about this ASX uranium stock?
Bell Potter notes that Paladin Energy has announced an all-scrip deal to acquire Fission Uranium (TSX: FCU).
While this will mean ~30% dilution for shareholders, Bell Potter points out that they will gain exposure to one of the pre-eminent uranium assets in the Athabasca Basin for an attractive price.
And although the broker acknowledges that the acquisition won't add any new production in the immediate term, it won't be too far into the future until it does. In the meantime, its Langer Heinrich Mine will be able to fund developments. It said:
Our largest drawback to PDN prior to the announcement was the lack of viable near term growth options in the portfolio. This drawback is effectively removed with the inclusion of FCU's Paterson Lakes (PLS) project, a high-grade unconformity uranium project in Saskatchewan Canada. PLS aims to commence production in FY29, averaging ~9Mlbspa over 10 years.
We believe this profile fits neatly with production from PDN's Langer Heinrich Mine (LHM), which will be in its 5th/6th year of operations and producing ~US$200-$220m in free-cash-flow providing potential funding options for PLS.
In light of this, the broker sees scope for the ASX uranium stock to be producing 15Mlbs annually by the end of the decade. It adds:
By the turn of the decade, PDN could be producing ~15Mlbs U3O8 annually (13.5Mlbs attributable) across two sites. The question is what is the new business worth? On a EV/ lb of production value, we would argue it's significantly more than the current implied combined market capitalization. On a DCF basis, it sits somewhere in between. Either way, we argue the new PDN is bigger and better.
Buy the dip
Bell Potter notes that Paladin Energy's shares have sold off since last month, which it feels has created a buying opportunity.
As a result, it has upgraded the ASX uranium stock to a buy rating with a $16.10 price target. This implies potential upside of approximately 30% for investors over the next 12 months. The broker concludes:
PDN has sold off since we moved to a Hold in May-24. We see this as a potential buying opportunity Irrespective of the transaction. We ascribe some additional value for the FCU transaction in this note and assume the deal goes through. Our recommendation moves to Buy, TP $16.10 (previously $15.70).
