Interesting note out last week from BoA Securities analysts on Uranium, hat tip to Ocean Wall for forwarding.

My September Financial Times column looked at prospects for nuclear power and suggested that uranium prices might, just might, start to move higher after a long funk.  The BoA analysts agree.

The report’s core argument is that supply constraints might start to have an impact.

“We find that lost U3O8 supply is far outpacing U3O8 demand lost to declines in nuclear power generation. This, combined with ongoing uranium supply discipline by major producers, means that we now see a 38.5Mlb (21%) market deficit in 2020E, prior to accounting for commercial inventory drawdowns (which are required to make up the shortfall)….For example, Kazatomprom (KAP) continues to limit U3O8 production and Cameco (CCO) keeps its world-class McArthur River mine on care and maintenance. This combined with the recent COVID-19 related disruptions mean historically high levels of spot buying by producers is expected to continue in Q4’20 and into 2021.”

Crucially nuclear power demand is holding up by comparison with other fossil fuel sources.

“IEA electricity generation data released today showed that through the end of July 2020, electricity generated from nuclear (representing approximately 84% of global nuclear electricity generation) declined by 3% year-over-year (yoy) vs. the comparable period of 2019. …. Nuclear has also shown resiliency vs. coal and oil based electricity generation, which for the OECD countries, declined 22% yoy and 12% yoy vs. nuclear down just 6%.”

According to the BoA analysts, with luck uranium prices might move higher…

“We see the spot U3O8 price consolidating in H2’20 and well-supported above $29/lb. We continue to see higher prices in 2021E ($34.40/lb) and beyond ($45/lb by 2025E).”

Hipgnosis post Universal deal – on that basis Spotify and Round Hill probably worth even more

Music royalties fund RoundHill looks to be readying its IPO for  November. My guess is that demand for this new fund will be huge, helped along a bit by a note out this morning from N+1 Singer which suggests an even higher valuation for the Hipgnosis music fund.

The valuation point is based on Tencent’s move to increase its stake in Universal Media Group (UMG) to 20% (from 10%). The implied valuation for UMG was at €30bn which implies a valuation at c25x multiple on current EBITDA.  That implies an earnings yield of 4%, which if applied to SONG would imply a valuation of 148p for SONG. Personally, I suspect that an EBITDA yield of 4% is rather toppy especially as Hipgnosis is not really the same kind of integrated music business as Universal. By contrast RoundHill is much closer to that model and I suspect that an earnings yield of 6 to 8% for this new fund might not be unreasonable.

More pertinently I would suggest these high valuations are a strong support for Spotify’s share price. All these valuations fundamentally depend on the infrastructure that Spotify (and to a much lesser extent Apple Music and Deezer) provides. I’m a long-term bull on Spotify’s shares.

Here’s N+1 Singer’s analysis on those numbers…

“In our calculations we have been conservative and taken the net income figure of £32.7m as per the 31st March 2020 accounts and adjusted for £19m of amortisation and £13.3m and one off “right to income” (where certain catalogues where acquired with prior year income attached) and produced an adjusted net revenue line of £38.4m. Applying the aforementioned 25x multiple to this adjusted net revenue figure we reach an implied SONG valuation of £914m. After adjusting for net debt of £45.9m as at 31st March, we get an implied equity valuation of £914m which based upon the issued share capital of 615.8 million Ordinary shares (as at 31st March) gives an implied valuation of 148p per Ordinary share.”