Are you looking for big returns for your portfolio? If you are and don't mind investing in the mining sector, then it could be worth considering Paladin Energy Ltd (ASX: PDN).
That's the view of analysts at Bell Potter, which believe the ASX 200 uranium stock could be undervalued at current levels.
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What is the broker saying about this ASX 200 uranium stock?
Bell Potter notes that Paladin Energy released its full year results last week and delivered a profit ahead of expectations. It commented:
PDN reported a FY24 statutory NPAT of US$60m (underlying -$32m), which was ahead of our estimate of US$22.9m. The deviation between the result and our figures was a higher degree of capitalised costs for the Langer Heinrich restart. The driver of PDN swinging to a statutory net profit was the $92m reversal of stockpile impairments. PDN finished the year with $48m in cash on the balance sheet, and $80m in unused financing facilities.
The Langer Heinrich ramp up remains on track with operating metrics (throughput, recoveries, processed grade etc) meeting expectations. As explained previously, sales and revenue in FY25 will remain lumpy on a QoQ basis, making it difficult to estimate heading into results periods. Over FY25, these results should balance out.
Time to buy?
In response to the results, the broker has retained its buy rating and $15.70 price target on the ASX 200 uranium stock.
Based on its current share price of $9.60, this implies potential upside of 63% for investors over the next 12 months.
To put that into context, a $5,000 investment would turn into approximately $8,150 if Bell Potter is on the money with its recommendation.
The broker commented:
We have updated our model to include the FY24 result, and marked to market near-term uranium prices, which drives the majority of our earnings adjustments: FY25 -9%, FY26 -2% and FY27 -2%. We maintain our production and sales outlook for FY25, (4.5Mlbs & 3.9Mlbs vs guidance – production 4.0-4.5Mlbs, sales 3.8-4.1Mlbs) and unit operating costs (C1 US $31/lb vs guidance $28-$31/lb).
PDN operating a uranium asset in a bull market for the commodity is likely to command a premium to the sum-of-the-parts valuation in our opinion. We have applied a 10% premium to our base valuation which is supported by 1) PDN being a current producer with a comparatively lower risk restart project at Langer Heinrich, and 2) PDN offering domestic institutional investors greater liquidity than peers. Additional factors which may support this thesis would include consolidation and M&A activity.
