Analysts recommend buying Kazatomprom shares after strong financial performance

Freedom Broker and Jusan Invest analysts have raised their target price for Kazatomprom’s stock by one-third and are advising investors to buy it following the release of the company’s financial report for the first six months of 2024, according to recent brokerage reviews.

«Kazatomprom’s share valuation has increased to KZT24,600 (approximately $50.90), with a growth potential of 34% from the current KASE price of KZT18,370 ($38). The recommendation is to ‘BUY’,» stated analysts at Freedom Broker.

The experts attributed this positive assessment to a 13% growth in revenue, a 14% increase in uranium sales and a 15% rise in the sale of uranium products. However, they also noted a shift in the uranium delivery schedule, leading to an 18% decline in sales, as well as a decrease in margins due to a sulfuric acid shortage (gross margin fell from 48% to 37%). Freedom Broker has warned that the sulfuric acid shortage «may persist for another couple of years.»

«Besides, there is a reduction in the production level forecasts for the Budenovskoye joint venture for 2024-2026. We have adjusted the projected production costs in our valuation model to reflect an anticipated increase in the mineral extraction tax starting in 2025. On the other hand, we have lowered the weighted average cost of capital (WACC), revised the dollar exchange rate and updated data for some joint ventures,» the analysts said.

Kazatomprom previously reported that uncertainty over sulfuric acid supplies and delays in construction schedules at new field sites have required adjustments in production plans for 2025. The company had initially aimed to return to full production levels of 30,500 to 31,500 tons but now expects its 2025 output to be between 25,000 and 26,500 tons — an increase of approximately 12% over the 2024 forecast.

Jusan Invest has also revised its assessment of Kazatomprom’s shares. The analysts are projecting a 31% increase from the current price, raising the target to KZT24,500 (approximately $50.60), and recommend buying the stock. They highlighted a decrease in raw material sales and a 29.5% rise in operating expenses. The analysts attributed this to «the unfavorable influence of inflation, which is not offset by the corresponding depreciation of the tenge.»

«As a result, Kazatomprom’s performance in the first six months of the year was notably weak. Normalized operating and net income fell by 19% and 23.3%, respectively. Specifically, after-tax operating profit was estimated at KZT157.3 billion ($325 million). For reference, our forecast for all of 2024 was previously set at KZT593 billion ($1.2 billion), compared to KZT461 billion ($953 million) in 2023,» Jusan Invest reported.

The analysts believe the company’s performance will improve in the second half of the year due to higher sales prices and a stronger exchange rate; however, it is still expected to fall short of the initial projections for 2024. They cautioned that if the exchange rate declines, «the model will deteriorate,» though they did not elaborate on the specifics.

The experts also noted that the decline in uranium market prices, combined with an increased tax burden and the company’s efforts to bolster its reserves, has negatively impacted Kazatomprom’s investment profile.

On Aug. 23, Kazatomprom reported a net profit of KZT283.2 billion ($630.7 million) for the first six months of 2024, a 27% increase compared to the same period in 2023 (KZT222.3 billion). This profit growth was driven by increased income from associated and joint ventures, primarily due to higher spot prices for uranium oxide (U3O8).

Kazatomprom’s shares are owned by the following entities: 62.99% by Samruk-Kazyna, 12% by the Ministry of Finance of Kazakhstan and 24.34% by nominal holder Citibank, which issued depositary receipts traded on the London Stock Exchange (LSE). Changes in the shareholder structure occurred after an over-the-counter deal in late July, in which the National Bank purchased Kazatomprom stocks from Samruk-Kazyna using the National Fund, which the bank manages.

As of noon on Aug. 26, Kazatomprom shares on KASE were trading at KZT18,610 ($38.50), up 1.28% from the previous day’s close. Prices for Kazatomprom Global Depositary Receipts (GDRs) on the LSE increased by 6.8% to $38.70.