As our clients know well, we're incredibly bullish on nuclear power and its primary feedstock, uranium, as a multi-year secular trend. Since initiating our positions in leading uranium producers Denison Mines and NexGen Energy two months ago, we've seen very strong performance, ranging between +33 to +37%, respectively, as of today. This was largely driven by the launch of Sprott's Physical Uranium Trust, a key signpost we've been monitoring as a catalyst for improved price discovery in uranium markets.
This catalyst has already had a far greater impact on spot markets than we anticipated and further strengthened our conviction in the long-term uranium thesis. As a result, we’re increasing our exposure to Denison Mines (DNN) and NexGen Energy (NXE) in the Opportunities portfolio as well as initiating a new position in Cameco Corporation (CCJ), the world’s second-largest uranium supplier, to Offshore.
Our thesis on nuclear and uranium remains the same. We continue to believe that robust global demand, accelerating structural supply deficit, and highly attractive value proposition make uranium an investment opportunity worthy of our clients' capital: one which we believe could yield 2-3x returns net of fees on the 3-5 year horizon, with minimal downside risk.
We're thrilled that our Offshore strategy now includes Cameco Corporation (CCJ), the second-largest uranium supplier in the world. We believe Cameco offers an attractive investment opportunity with an extremely favorable up/down skew, given the company's strong net cash balance sheet, compelling unit economics, and uranium assets, which we believe to be world-class.
Additionally, we believe Cameco remains well positioned to benefit from the upcoming uranium bull market. We believe Cameco will be one of the key, primary suppliers for long-term utility contracts, given its large supply of uranium assets (455M lbs of proven reserves) and its capacity to produce 53M lbs of uranium each year.
We have strong conviction that Cameco's stock price could increase by 100%+ over the next 3-4 years, with minimum downside risk. Importantly, Cameco could provide an idiosyncratic and uncorrelated investment for the Offshore portfolio, helping protect capital during risk-off market trading.
Our investment process aims to maximize our portfolios' risk/adjusted return potential. Accordingly, we often adjust the weightings of certain investments within a portfolio, based on our level of conviction, industry exposure, and ongoing review of fundamentals.
To fund our CCJ investment for Titan's Offshore portfolio, we are trimming two of our positions (Adyen and Ferrari), and selling another (London Stock Exchange). In the Opportunities portfolio, we’re adding to DNN and NXE by selling Fastly (FSLY).
Adyen (ADYEY): We believe Adyen is a high-quality company that remains well-positioned to benefit from the secular growth of payments and the digitization of cash. However, Adyen’s strong stock performance this year has resulted in Adyen’s valuation becoming rich, at 60x Sales or 134x P/E. We’re happy to take some chips off the table after a +34% gain since we acquired the stock in early April.
Ferrari (RACE): We consider Ferrari another quality business that should perform well over the medium/long-term, given the company’s large runway for growth and compelling margin expansion potential from its robust pipeline of new model launches. In the near-term, however, we believe the company could be subject to elevated execution risk as it undergoes its aggressive transformation into a leading electric vehicle automaker under the new direction of electronics pioneer Benedetto Vigna. As a result, we’re happy to take some chips off the table here, too, after a +5% return since we acquired the stock in early April.
London Stock Exchange (LNSTY): We invested in the London Stock Exchange at the onset of the Offshore portfolio and have quickly realized a +12% gain. While we remain confident that LNSTY will perform well over the long term, the synergies coming from its recent Refinitiv acquisition have underperformed our expectations and could take longer than expected to become realized, leading our team to conclude that it is time to reduce exposure. From an opportunity cost perspective, we believe Cameco offers a better risk/reward proposition for Titan clients, given our strong conviction that the uranium market is nearing an inflection point, with plenty of upside return potential to offer Offshore.
Fastly (FSLY): Titan’s investment in Fastly was predicated primarily on near-term execution of its Compute@Edge (“C@E”) platform, which would allow the company to capture a significant share of a nascent but massive edge computing market. The company became a “prove-it” holding, following multiple quarters of subpar execution resulting from delays in releasing C@E into general availability and inefficiency within the sales organization. The two critical factors supporting our continued investment in the company were thus 1) successful C@E deployment and 2) improvements across the sales organization. However, our value-add research indicates continued headwinds for these two factors. We believe that allocating funds from Fastly to broader Uranium exposure increases the probability that the Opportunities portfolio will generate higher risk-adjusted forward returns in excess of the broader market.
Our team of investment analysts continually re-evaluates each of our existing investments, with the aim of ensuring our portfolios—and your capital—are best-positioned for outperformance over a 2-3 year time period.
TDLR: We love uranium, and we’re delighted to be further invested. Thank you as always for the privilege of managing your capital. If you have any questions, we’re here to answer.
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