More twists and turns in the UK’s nuclear energy transition
7th July 2022 |
Changes are coming
Before we begin this week’s update, we’d like to notify you of a slight change we’re going to be making to the Frontier Tech Investor service.
Normally, we publish a new, monthly recommendation to you on the second Thursday of every month, come rain wind or shine.
As you’re probably aware, market conditions have been pretty treacherous for some time. Even stocks with glaring potential can take a hit during these times if risk-off sentiment is overbearing.
As a result, we’ve had a re-think of our strategy.
We’re taking a more flexible approach when it comes to recommending stocks to you. That is, we’re not going to be so regimented in our stock recommendations. If the timing or conditions are poor for a particular stock, we’re not just going to recommend it at that time just for the sake of it.
We want to ensure that we introduce new stocks at the best moments. So, for a month, that might mean you don’t get a recommendation. But, in the next month, you may get two.
Fear not, we’re still going to recommend a healthy number of stocks to you: it’s just going to be using a more flexible approach.
Now, to nuclear…
How does one ensure “energy security”?
A valid answer could be nuclear energy.
Given geopolitical tensions in Russia and Ukraine, the UK is seeking to re-gain control of its energy production, and meet stringent sustainability targets.
As a reminder, the UK is targeting net zero greenhouse gas emissions by 2050.
Nuclear energy provides a feasible way to deliver sustainable energy security. Production isn’t restricted to geophysical location (i.e. proximity to coal, oil or gas) and doesn’t produce any carbon emissions.
Here’s a reminder of some aspects of the UK’s nuclear energy plans:
- By 2050, up to 25% of the UK’s electricity demand will be met by nuclear energy sources. Currently, nuclear energy sources meet around 16% of the UK’s electricity demand.
- The government plans to build eight new nuclear reactors in the space of eight years.
- The first of these nuclear reactors will not start generating electricity until June 2027.
In particular, the government has plans to build a 3.2-gigawatt plant at Sizewell in Suffolk (project Sizewell C). It is hoped Sizewell C will generate electricity for six million homes.
However, the plans for Sizewell C’s development have taken a twist.
The UK government is seeking to secure new investment for the Sizewell C project, after ending the involvement of China’s state-owned China General Nuclear (CGN) in the project due to security concerns. CGN currently owns 20% of the joint venture.
Under the new terms, the UK Government and Sizewell C’s promoter, EDF Energy, will each take a 20% stake in the project, with the remaining 60% going to investors. The UK Government has hired Barclays investment bank to find investors willing to back the project.
Meanwhile, according to the Financial Times, the UK Government needs to “tread carefully.”
CGN is already funding a third of the cost of the Hinkley Point C plant, another of the UK’s major nuclear energy projects. Alienating the Chinese company could lead to further delays on a project that is already “years behind schedule and billions over budget.”
Whilst the UK Government’s removal of CGN from the Sizewell C project is a bold move, we believe it could prove to be a positive one.
It will bring more of the UK’s nuclear energy transition back into its own hands, whilst also leaning on expertise from energy giant EDF Energy. EDF hails from Europe’s largest nuclear energy-producing country, France.
Despite claims from some of the UK’s biggest unions that EDF is ready to walk away from the Sizewell C nuclear power project, on 23 June 2022, EDF reiterated its commitment to the project, stating that it is making “strong progress.”
What’s more, a planning decision on the Sizewell C project is due by the end of this week.
We have a close eye on this, but expect the government to move full steam ahead with its development plans. Sizewell C is due to become operational in 2031.
The UK’s nuclear energy transition was never going to be a smooth road. Further twists and turns down the road are likely as the government adjusts to this new energy movement and balances the interests of stakeholders.
Nevertheless, the positive, proactive stance being taken towards nuclear energy is hugely encouraging to see, and one which provides a strong investment case to nuclear energy-centric stocks in the Frontier Tech Investor buy list.
These are:
- Aura Energy (LSE: AURA). Aura is an early-stage mining company, which is edging closer to uranium oxide production at its Tiris project site in Mauritania. Of course, uranium oxide is a key ingredient used in nuclear energy production, where the “splitting” of uranium ions produces vast amounts of energy.
- Yellow Cake (LSE: YCA). Yellow cake is a uranium-hoarding company, giving direct exposure to the uranium spot price without processing or mining risk. Based upon their uranium holdings announced in their Q1 report and the current uranium spot price of $49.25, the company’s uranium holdings exceed $1 billion.
- Rolls-Royce Holdings (LSE: RR). Rolls-Royce is an engineering company focused on the production of propulsion systems and renewable energy infrastructure.
Speaking of Rolls-Royce, the company is playing an active role in the UK’s nuclear energy transition.
Rolls-Royce is currently developing its very own small modular reactors (SMRs), a smaller and more mobile subset of nuclear reactor compared to a conventional nuclear energy plant.
In fact, on 4 July 2022, Rolls-Royce announced a shortlist of six locations for a £200 million nuclear reactor factory, which will be used to develop its SMR technology.
However, the project still needs government approval. According to Rolls-Royce, if it doesn’t get this approval within the six months, it will not be able to deploy its first reactor by the 2029 target date.
How far this could slow the UK’s energy transition remains to be seen.
Nevertheless, we’re confident Rolls-Royce can get the approval in time, with the UK government highlighting the “importance” of SMR technology in the nuclear energy transition.
Please remember to stick to our BUY limits. You can find the original recommendations in the buy list here.
Buy list update
Volex (LSE: VLX)
Volex is a global manufacturer of power and connectivity products.
The company’s products play an integral role in powering some of the most forward-looking industries, including electric vehicles (EVs) and artificial intelligence.
Volex’s latest financial figures are hugely encouraging.
For the 52 weeks to 3 April 2022, Volex recorded revenues of $614.6 million. This is a 38.6% increase on the same period in the previous year.
In addition, for the 52 weeks to 3 April 2022, Volex recorded final operating profits of $41 million. This is a 33.6% increase on the same period in the previous year.
What’s more, Volex’s dividend per share grew from 2.2p per share to 2.4p per share across the two periods.
In part, we can attribute Volex’s strong financial figures to its growing involvement in the EV industry. For the 52 weeks to 3 April 2022, sales of its EV grid plugs almost doubled on the previous year as it added “new customers and new products.” Revenues for the EV sector grew to over $100 million.
In addition, the company’s consumer electricals and medical business segments grew 14% across the year.
Finally, Volex has proposed a final dividend of 2.4p per ordinary share, to be paid to shareholders on 26 August 2022 to shareholders on the company register on 22 July 2022. The ex-dividend date will be 21 July 2022, which is the date by which you need to own the stock in order to receive dividend payment.
Despite the torrid market conditions, Volex continues to show resilience and deliver value to shareholders. Also, according to the company, it is already experiencing “higher levels” of customer demand this year.
We remain excited by Volex’s potential in delivering electrical goods to the world’s fastest-growing industries.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
The Frontier Tech Investor “Top Three”
Sometimes it’s hard to decide on which stocks to invest in from our buy list.
Below is our Frontier Tech Investor “Top Three” section showing three stocks in open BUY positions. If you’re trying to figure out what to invest in next, these are three that we think are a great place to start.
This doesn’t mean our other stocks are no good: this is just a tool to help you spot the next Frontier Tech Investor stock that could be worthy of your consideration.
Pod Point Group (LSE: PODP) – The UK’s inadequate (for now) electric vehicle (EV) charging network is threatening to bring the EV transition to a halt. By 2032, the shortfall of EV charge points in the UK is estimated to reach 250,000. However, Pod Point’s innovative range of EV charging solutions could go a long way in ensuring this deficit is reduced. The company’s charging technology is fit for homes, public charging bays, lamp posts and commercial buildings, and can ensure that the EV transition reaches all areas of the UK. In our view, Pod Point can unlock the potential of the UK’s EV charging network. You can find the original recommendation here.
Team17 (LSE: TM17) – Team17 is a video game publisher. It has a large collection of games which contains some of the most popular games of the gaming world. One of these is Worms, the enthralling last-man-standing survival game born out of the nineties gaming boom. Team17 is keeping up with the times and offers its games across a number of contemporary technology platforms. It has even flirted with the idea of non-fungible tokens (NFTs), a megatrend which could revolutionise the gaming industry. At a time where sceptics think online gaming will come off the boil following the ease of lockdown restrictions, Team17 keeps gamers coming back for more. You can find the original recommendation here.
AB Dynamics (LSE: ABDP) – AB Dynamics is a provider of automotive testing services. The automotive industry is undergoing rapid transformational change, heading for an electric and autonomous future. This brings an ever-changing regulatory landscape, with automotive manufacturers needing to ensure they adhere to the latest safety standards. AB Dynamics testing services are helping to make arduous, chaotic testing periods more seamless than ever before, ensuring that the vehicles of tomorrow are fit for our roads. You can find the original recommendation here.
Sam Volkering
Editor, Frontier Tech Investor
Elliott Playle
Analyst, Frontier Tech Investor
