Denison Mines Corp (TSX: DML) is a uranium exploration and development company with interests focused on the Athabasca Basin region of northern Saskatchewan, Canada.

Why should investors book profit?

• Increase in cash used in operating activities: The company reported a higher cash used for operating activities of CAD 14.8 million in 9MFY21, higher than CAD 8.4 million in pcp. This was despite a net income of CAD 21.6 million in 9MFY21 v/s a net loss of CAD 13.1 million in pcp. This was primarily due to increase investments in equity instruments and capital expenditure across various uranium assets. Higher cash used for operations can hurt the company’s overall liquidity.
  

• Rise in input costs: In the recent past, the company is battling with higher input costs, and the continuation of the above trend might impact the company’s upcoming margins and cash flows. Evaluation costs and General and administrative costs stood at CAD 12.9 million and CAD 7.0 million in 9MFY21, significantly higher than CAD 2.6 million and CAD 5.7 million, respectively, in pcp. Notably, evaluation costs and general & administrative costs in 9MFY21 represents ~132% of the total revenue, which is alarming.

Stock Recommendation:

The company reported its gross margin and EBITDA margin of 55.2% and 4.4%, respectively, in Q3FY21, weaker the industry median of 58.9% and 47.5%, respectively. This indicates a higher rising input costs on the operational level. The stock of DML is available at a higher valuation of EV to Sales multiples of 76.3x on TTM basis, as compared to the industry (Energy) median of 2.9x. Hence, considering the aforesaid facts, we give a ‘Sell’ rating on the stock of DML at the closing price of CAD 1.92 on March 03, 2022.

One-Year Technical Price Chart (as on March 03, 2022). Source: REFINITIV, Analysis by Kalkine Group

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