Family office investor Samir Mohamed presented his investment theses on Sprott Physical Uranium Trust (Canada: U.UN) and PrairieSky Royalty Ltd. (Canada: PSK) at Best Ideas 2023.
Thesis summaries:
Sprott Physical Uranium Trust is a uranium play in a market with constrained supply. The supply of uranium was more than 30% below demand in 2021, and a supply deficit persisted for more than ten years, with a shrinking stockpile of unknown size. Meanwhile, public policy toward nuclear energy in Western countries is changing from phase-out to growth, adding to existing demand growth from Asia. However, there has not been a massive supply response to the long-term growth. The reason for this is that the breakeven price for new uranium mines is around USD 70-80 while the uranium spot price is below USD 50. Either the uranium price goes above the breakeven price to build new mines or those mines do not get built, the uranium stockpile depletes and nuclear reactors run out of fuel. As building uranium mines takes several years, a price spike in uranium within the next couple of years appears likely.
PrairieSky Royalty is the largest Canadian oil and gas royalty company. An oil and gas royalty company receives cash payments based on the produced volume and price from the oil and gas producers on land covered by the royalties. Unlike oil and gas producers it has virtually no input cost inflation and very little capex to maintain cash flow. With around 60 employees, it generated more than USD 400 million in revenue in the twelve months ended September 30, 2022, with 70% EBIT and 52% net profit margins. PSK has used its high operating cash flow to acquire royalties, almost doubling the land per share covered by royalties since its IPO in 2014. The company is valued at an EV / operating cash flow multiple of less than 11x.
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About the instructor:
Samir Mohamed started with value investing in 1999 and manages a private family fund, full time since 2016. He focuses on good businesses with temporary problems and suppressed stock prices. Samir enjoys collaborating with other value investors regularly via in-person meetings or Zoom calls. He was global head of the product management teams of a 170 Mio. EUR industrial business at Siemens. He worked at Siemens for 13 years. Samir has a master’s degree in Management, Technology, and Economics and a bachelor’s degree in material science, both from ETH Zurich. He is based in Bangkok, Thailand.
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