Guess which ASX uranium stock was just upgraded to a buy rating

Bell Potter just upgraded this miner to a buy rating.

| More on:
A young male ASX investor raises his clenched fists in excitement because of rising ASX share prices today

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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).

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Energy Shares

Worker inspecting oil and gas pipeline.
Energy Shares

Would Warren Buffett buy Woodside shares?

Woodside is one of the leading stocks in Australia.

Read more »

a man with a hard hat and high visibility vest stands with a clipboard and pen in front of a large pile of rock at a mining site.
Energy Shares

1 ASX 200 coal stock to buy and 1 to hold

Which one of these coal miners does Bell Potter rate as a buy?

Read more »

A colourfully dressed young skydiver wearing heavy gold gloves smiles and gives a thumbs up as he falls through the sky.
Energy Shares

Is it time to dive back into ASX lithium shares?

Could these miners recharge returns?

Read more »

Two fists connect in a surge of power, indicating strong share price growth or new partnerships for ASC mining and resource companies
Resources Shares

Why did ASX uranium shares like Boss Energy have such a bumper day?

Australia's uranium producers continue their rally in 2024.

Read more »

Natural gas plant engineers using laptop
Energy Shares

Woodside share price lifts amid 6 million tonne Taiwan gas deal

Investors are bidding up the Woodside share price on Thursday.

Read more »

A coal miner smiling and holding a coal rock, symbolising a rising share price.
Energy Shares

Up 45% in FY 2024, can the Yancoal share price keep burning bright in FY 2025?

The Yancoal share price leapt 45% in the financial year just past and is off to a roaring start in…

Read more »

man looks at light bulbs and smiles
Energy Shares

AGL shares struggled in FY24. Will FY25 be different?

Things could be looking brighter.

Read more »

A woman jumps for joy with a rocket drawn on the wall behind her.
Energy Shares

Guess which ASX uranium stock is rocketing 80% on 'world class grades'

What is getting investors excited? Let's find out what's happening.

Read more »