NOTHING will stop the UK’s nuclear energy transition
19th May 2022 |
Here at Frontier Tech Investor, we’ve made no secret of our excitement about the UK’s nuclear energy transition.
In fact, you may recall we recommended two UK-listed nuclear energy stocks to you back in March 2022.
Within the recommendation, we wrote about the potential opening of the £20 billion Sizewell C nuclear energy plant in the UK, which was subject to “government approval and a final investment decision”.
In short, we saw the opening of Sizewell C as a catalyst for UK nuclear energy adoption, easing concerns over its safety and practicality as an energy source.
However, on 13 May 2022, the UK government announced the delaying of the final decision on plans for Sizewell C, 12 days ahead of the original decision deadline.
The deadline for the final decision has been moved to no later than 8 July 2022.
According to the government, more time is needed to assess the plans.
Although this may slow the UK’s transition to nuclear energy, we don’t see it as much of a problem.
In our view, a hold-off on the decision is delaying the inevitable, and in no way impacts our positive long-term outlook towards nuclear energy.
We believe the need for energy independence, as exposed by the Russia-Ukraine crisis, and the need for renewable energy sources in the wake of COP26, continue to give nuclear energy stocks a strong investment case.
Here’s a reminder of some aspects of the UK’s nuclear energy plans:
- The government plans to build eight new nuclear reactors in the space of eight years, with Sizewell C identified as being a possible site.
- 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.
- On 13 May 2022, the UK government launched a new £120 million “Future Nuclear Energy Enabling Fund” which will contribute towards the deployment of the UK’s new nuclear reactors.
All this means that the abandoning of Sizewell C seems unlikely, given that the UK will need to gear all of its nuclear energy resources towards achieving these targets.
In fact, it is hoped that Sizewell C will power the equivalent of six million homes, making it a crucial part of the UK’s energy transition.
To be clear, a slight slowdown in the “rapid nuclear expansion” promised by UK policymakers doesn’t impact our long term-view towards our UK-listed nuclear energy stocks: Aura Energy (LSE: AURA), Yellow Cake (LSE: YCA) and Rolls-Royce Holdings (LSE: RR).
Aura Energy is an early-stage mining company that operates a uranium-mining project called Tiris in Mauritania, Africa.
Of course, uranium is an essential ingredient in the creation of nuclear energy. Uranium isotopes undergo fission (splitting) reactions, which release vast amounts of energy.
Aura is on the cusp of moving into the production stage of mining, after discovering water deposits at the Tiris site. This is crucial for a smooth mining process as it makes extraction easier.
A move into the production phase will edge Aura closer to commercial production, which is where its real growth prospects lie.
In addition, Yellow Cake is a uranium-hoarding company, giving direct exposure to the uranium spot price without processing or mining risk.
For the first quarter ended 31 March 2022, the value of Yellow Cake’s uranium oxide holdings increased 38% on the previous quarter, rising from $665 million to $916.7 million.
In addition, Yellow Cake confirmed it had entered into a buyback agreement with Kazatomprom, with whom it has a commercial partnership.
Upon settlement of the buyback in June, Yellow Cake will hold 18.81 million lb of uranium oxide.
At the current uranium spot price of $48.9/lb, this will mean the value of Yellow Cake’s uranium holdings will exceed $1 billion.
At a current stock market valuation of 363.60GBp, Yellow Cake’s share price looks heavily undervalued.
Finally, Rolls-Royce Holdings (LSE: RR) is an engineering company focused on the production of propulsion systems and renewable energy infrastructure.
Rolls-Royce is in the process of building parts for its own small modular reactors, as it expects to receive government approval for them by 2024.
Paul Stein, the chairman of Rolls-Royce SMR, a subsidiary of Rolls-Royce Holdings, is hopeful of contributing to the UK’s energy grid by 2029.
Make no mistake: the UK’s energy industry is heading towards a nuclear future.
We reiterate our BUY recommendations for Aura, Yellow Cake and Rolls-Royce. You can find the original recommendations in our Frontier Tech Investor buy list.
Buy list update
Velocys (LSE: VLS)
Velocys is a provider of sustainable aviation fuel (SAF) that converts biomass and forest residue into fuel used by aircraft.
The company had a successful 2021, reporting hugely encouraging financial results.
For the year ended 31 December 2021, Velocys recorded revenues of £8.3 million. This is a whopping 4,050% increase on the £0.2 million figure recorded in 2020.
In addition, Velocys recorded a healthy net cash position of £25.5 million. This is nearly double the £13.1 million figure recorded in the previous year.
Operating losses remained relatively unchanged at £9 million in 2021.
We acknowledge the losses. However, the surge in revenues indicate that Velocys is successfully moving into commercialisation, which is what really appeals to us.
Of note, Velocys secured a fifteen-year agreement with Southwest Airlines, which will see Velocys provide 575 million gallons of SAF, starting in 2026.
In addition, Velocys’ Altalto production facility is moving towards commercial production.
In fact, the project is being developed in collaboration with British Airways until 2023.
Also, after being sold to private equity company Foresight Group LLP, there is an obligation for Foresight to invest £100 million into the project.
The expertise and financial backing for the project is promising to make Altalto a success, and ensure that the facility will reach its target of commercial production by 2025.
The capacity of the Altalto facility is estimated to be 20 million gallons of jet fuel per year, and it’s set to become Europe’s first commercial waste-to-jet fuel facility.
In our view, now is an opportune time to take a position in Velocys, considering its ongoing commercial developments and the UK’s commitment to achieving net zero aviation emissions by 2050.
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.
Volex (LSE: VLX) – Volex is a global manufacturer of power and connectivity products. This includes power cables, fibre optics and charging plugs. It might sound a little basic, but these are critical mechanisms which are powering some of the key technologies of the modern day. These technologies include electric vehicles (EVs), artificial intelligence (AI) and big data networks. Volex has huge credibility behind it, particularly as it does business with some of most widely recognised companies in the world, including Tesla. 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 which 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.
Sam Volkering
Editor, Frontier Tech Investor
Elliott Playle
Analyst, Frontier Tech Investor
