Denison Mines Corp. (TSX: DML) is a uranium exploration and development company with interests focused on the Athabasca Basin region of northern Saskatchewan, Canada. The company has an effective 95% interest in its flagship Wheeler River Uranium Project, which is the largest undeveloped uranium project in the infrastructure rich eastern portion of the Athabasca Basin region of northern Saskatchewan. 

Key Updates:

• Depressing Margins: In Q1FY22, the company reported its gross margin 43%, lower than the industry median of 58.2%. On the other hand, the group reported a negative EBITDA margin of 190.2% in Q1FY22 v/s industry median EBITDA margin, which was 47.7%. This indicates weak cost management and poor operational efficiency and remains a major concern for the company.

• Higher Cash Conversion period: In Q1FY22, the company reported its cash conversion period of 205.3 days, significantly higher than the industry median of 2.2 days. This indicates that the company takes higher time to convert its investments to cash flows, which remains a key concern for the group.
  

• Reported lower trade receivables: In Q1FY22, the company reported its trade receivables of CAD 2,630 million, which is lower than CAD 2,866 million inQ4FY21. This is a key negative, as it denotes the amount owed to a business by its customers following the sale of goods or services on credit. A lower value denotes a lower demand of the company’s products and services.

Stock Recommendation:

In Q1FY22, the company reported net cash used in operating activities of CAD 3.4 million, significantly higher than cash used in operations of CAD 1.9 million in pcp. This was primarily due to a weak working capital management, which is a key negative. Notably, this might lead to liquidity crisis. The stock of DML is available at an EV to Sales multiples of 97x on NTM basis, as compared to the industry (Energy) median of 3.9x. Hence, considering the aforesaid facts, we give a ‘Sell’ rating on the stock of DML at the last closing price of CAD 1.54 on June 10, 2022.

One-Year Technical Price Chart (as on June 10, 2022). Source: REFINITIV, Analysis by Kalkine Group

The reference data has been partly sourced from REFINITV

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