Lightbridge Corporation: Continued Progress Maintains Attractiveness

Company Profile

Lightbridge Corporation is a nuclear fuel technology development company focused on addressing the world's climate and energy needs. The company's shares trade on NASDAQ with a ticker symbol LTBR. The company is based in based in Reston, Virginia, USA.

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Summary

• Despite Lightbridge's current weak price performance, numerous fundamental factors suggest an incoming improvement.
• With solid liquidity, demonstrated by sufficient working capital to cover three years of operating expenses.
• Advancing technological developments alongside strategic collaborations like the recent partnership with Centrus Energy showcased at the recent COP28, LTBR emerges as an appealing investment opportunity.
• LTBR's price-to-book ratio also looks attractive further underlining that it's a good prospect for investors looking far out into the future.

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The LTBR's performance is particularly poor, even compared to the NLR (VanEck Uranium+Nuclear Energy ETF) which tracks the nuclear energy index. I believe the root cause lies in its low revenue generation, resulting in any developments within its domain or the sector potentially causing exaggerated reactions in the stock price. On the contrary the latest earnings report continues to make progress.

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Here I look at five factors related to Lightbridge Corporation that indicate that it’s indeed on the right track, especially in light of its recent final quarter (Q4 2023) and full year 2023 results.

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1. Sustained working capital

With the company’s Lightbridge Fuel, which focuses on fuel rods for nuclear reactor cores, still in development, liquidity is one of the most important financial facets to consider since it measures how long the company's product development can continue before it becomes operational. I like to assess this using the working capital to operating expenses ratio, which indicates the extent to which these expenses are covered.

For 2023, the ratio is at 3.1x which means that the company has enough to fund three years of operating expenses. The number has dropped from 3.6x in 2022 on higher operating expenses of USD 9 million in 2023 compared to USD 7.8 million the year before while the working capital remained unchanged at USD 28 million.

However, even then the number is alright considering that the company expects its manufacturing efforts will commence in the next 2-3 years. It might not be fully commercialised by then and may have to raise funding at that point. But this is just speculation right now. The key takeaway here is that for the foreseeable future, Lightbridge Corporation doesn’t have liquidity concerns. This is also helped by the fact that it has no debt on its books at present.

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2. Progress on the TRL framework

Lightbridge is adopting the Technology Readiness Level (TRL) system to illustrate the progress of its fuel development efforts. Originally developed by NASA ,the framework’s levels extend from T1 to T9, where T1 represents the initial concept and T9 is the final stage of maturity indicating that the technology has been proven in operation. On this scale, Lightbridge figures at T4-5. This reflects that it has moved beyond the theoretical and is presently being tested in the laboratory environment (see charts below).

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3. Collaboration with Centrus Energy

The company has also made an agreement with the nuclear fuel supplier Centrus Energy to explore the addition of a dedicated Lightbridge Pilot Fuel Fabrication Facility [LPFFF] at its American Centrifuge Plant in Piketon, Ohio. The collaboration is synergistic since Centrus Energy is developing the HALEU fuel while Lightbridge is developing the fuel rods. Underlining this, Centrus Energy mentions the following in the announcement about the collaboration:

"Since Lightbridge Fuel has the potential to bring HALEU and its benefits to the existing fleet of reactors, this partnership holds the potential to significantly expand the market for HALEU.”

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4. Attractive market multiples

The LTBR’s trailing twelve months [TTM] price-to-book (P/B) ratio is currently at 1.29x  compared to the 1.6x at the end of November 2023. Interestingly, at the time the company’s P/B was the same as the energy sector average of 1.6x as well. While the sector ratio remains essentially unchanged even now, LTBR’s price decline has reduced its ratio.

Its ratio is also far lower than those of its nuclear manufacturing peers. Among these, LEU is trading at the highest P/B of 19.8x, followed by nuclear components manufacturer BWX Technologies (BWXT) at 10.4x. The small modular reactor company NuScale Power (SMR) is trading the lowest, but still much higher than LTBR, at 3.04x.

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5. COP28 confirms nuclear energy growth

Supporting the current focus on nuclear energy stocks is the growing recognition of the sector's role in achieving net zero targets. This deserves particular attention currently, given the approximately 10% drop in uranium prices over the past month. However, the YTD the price remains up by over 3% and has surged by over 85% in the past year.

The need for greater involvement of nuclear energy in ensuring energy security and promoting clean energy was further emphasized at the recent COP 28, where a declaration by 20 countries to triple nuclear energy by 2050 was announced as a "realistic and practical path to meet net zero carbon emissions goals".

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What's next?

With so much positive happening, why is LTBR's stock plunging without any recent bad news?

There are likely two reasons.

Firstly, the fallout from NuScale Power canceling the Carbon Free Power Project still affects it.

Secondly, there are many other options in the nuclear energy field now, making safer bets for investors.

But this drop has made LTBR's stock even more appealing. Plus, with its technology still progressing, there's probably more room for growth. Also, being one of the few nuclear manufacturers you can buy shares in gives it an edge. Even though it hasn't started making money yet, it's still a good bet for investors who are thinking long term.

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Analyst's Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in CCJ, over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Harmonic Invest's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Harmonic Invest is not a licensed securities dealer, broker or UK investment adviser or investment bank. Harmonic Invest is managed by an individual writer who is not licensed or certified by any institute or regulatory body.