All roads lead to nuclear
8th September 2022 |
It’s difficult to look past the energy crisis at the moment.
Soaring bills are not being helped by Russia’s actions in its conflict with Ukraine.
Russia’s main gas pipeline to Europe, Nord Stream 1, was meant to re-open on Saturday after being closed off for “maintenance work” for three days. However, it will be now be closed “indefinitely”.
This closure could heap more pressure on energy supplies this winter, and lead to further price increases.
As a grim reminder, on average, UK households will have to fork out £3,549 a year from October under the new price caps. The pipeline shutdown thus further highlights the need for energy independence.
Which is exactly what nuclear energy provides. It promises a cheaper and greener future for energy.
For example, nuclear energy doesn’t produce any carbon emissions. What’s more, the cost of producing nuclear energy is only 0.4 cents per kWh, whereas gas costs between 1.3 and 2.3 cents.
The energy crisis we’re facing is injecting urgency into the nuclear energy transition.
On 2 September, the UK government announced fresh funding for the nuclear energy industry, with £3.3 million to be allocated to nuclear energy projects, helping to develop “cutting-edge” nuclear energy technology.
In particular, the funds will be used to build high-temperature gas reactors (HTGRs). These are reactors that can produce high-temperature gas without any core meltdown accidents. They are around 15% more efficient than conventional light water nuclear reactors.
The financing is part of the £385 million Advanced Nuclear Fund that seeks to make HTGR technology commercially ready by 2030.
In addition, you may recall that in our 11 August 2022 update we explained that approval for the UK’s Sizewell C nuclear plant had been given. We saw this as a huge step forward for the UK’s nuclear energy transition.
On 1 September, the UK government confirmed that it will pledge £700 million to the Sizewell C project.
The money pouring into the nuclear trend is huge, and shows the direction in which the energy industry is heading. The UK nuclear energy industry now contributes more than £12 billion to the UK economy.
Given current newsflow, we believe now is an opportune moment to ride the nuclear energy trend.
Aura Energy (LSE: AURA), Yellow Cake (LSE: YCA) and Rolls-Royce Holdings (LSE: RR) provide excellent exposure to the industry.
Firstly, Aura Energy is an early-stage mining company. Aura mines uranium oxide, used in the generation of nuclear energy, at its Tiris project in Mauritania, Africa.
Following a commercial update from Aura, which stated that the uranium grades at Tiris were between 500% and 600% higher than previously expected, CEO Dr. Will Goodall said the company is “moving closer to uranium production”.
This is encouraging to see, and could fast-track the Tiris project which is forecast to produce 800,000 lbs of uranium oxide per annum and to begin production in 2024.
Aura has the credentials to transform itself into the mining powerhouse that we’ve envisaged for some time.
It’s just starting to deliver value to shareholders, too. The company’s share price has risen 66.9% from 8.75GBp on 22 June this year to 14.6GBp at the time of writing.
Yellow Cake is a uranium holding company that gives direct exposure to the uranium spot price without processing or mining risk. The company continues to accumulate uranium at an impressive rate, with holdings of the chemical element now worth almost $1 billion.
Yellow Cake’s share price has been rising in recent weeks, with investors capitalising on the heavy discount at which we believe it trades.
Between 23 August and the time of writing, its share price has increased a healthy 22.7%, and it stands at 428.6GBp at the time of writing.
Finally, Rolls-Royce is a provider of propulsion systems and energy infrastructure. The company has been earmarked by the UK government to help drive the UK’s energy transition.
In July, Rolls-Royce announced that it had shortlisted six new sites for the development of a £200 million small modular reactor (SMR) factory. SMRs are smaller, mobile and cheaper to build than conventional nuclear power plants.
Rolls-Royce is still awaiting approval for this, but it is hopeful it will come online in 2029.
What’s more, Rolls-Royce is helping to assist the nuclear energy transition overseas.
On 26 August, Rolls Royce announced a commercial agreement with Dutch energy company ULC-Energy to deploy its SMRs to the Netherlands. It also has memorandums of understanding (MOUs) with companies in Estonia, Turkey and the Czech Republic.
The company has all it takes to become a global powerhouse in the provision of nuclear energy alternatives. As a result, our optimism towards the stock remains at an all-time high.
We reiterate our BUY recommendations for Aura, Yellow Cake and Rolls-Royce.
You can find the original recommendations by clicking the “open date” link next to each company in the buy list.
This leads us nicely on to next week’s update. With strong tailwinds behind nuclear and renewable energy, we are going to introduce you to not one, not two, but three new stocks that we think provide the best exposure to the green energy transition. Stand by for that…
Buy list update
Aston Martin Lagonda (LSE: AML)
Aston Martin is a producer of luxury sports cars.
In July, Aston Martin announced a partnership with Saudi Investment Group, the Public Investment Fund (PIF).
As well as a £78 million share purchase from PIF, the fund confirmed a £575 million rights issue to help Aston Martin service its debts and ensure “stability”.
This week, on Monday 5 September, the rights issue was confirmed. The company said the rights issue would be on a 4-for-1 basis at 103GBp each. That means for every one share of Aston Martin you own, you’ll have entitlements to four rights issue shares.
Following the rights-issue announcement, Aston Martin’s share price dropped from
Friday’s close of 480.1GBp to 405GBp. This is to be expected, when a discounted rights issue is confirmed to the market.
At the time of writing, Aston Martin’s share price is 448.1GBp.
The large discount being offered in the rights issue can naturally be a cause for concern for investors. But it can also end up being a great opportunity to lower your cost base and revive the companies fortunes.
We see it as a reasonable move for Aston Martin. The capital, along with the guidance of the PIF, will help it to finance new models, achieve its financial targets and also cope with supply chain strains.
As a result, we recommend that if you’re entitled, you accept the 4-for-1 rights issue in full.
Firstly, the rights shares are at a heavy discount so there’s a decent possibility they could trade in a healthy profit once available. There is of course the risk the stock price readjusts lower when the rights stock become tradable, so be aware you may see some volatility in the stock price this month.
Secondly, if you don’t accept the right issue, then you will be diluted by those who take up the issue, which is fully underwritten, so it will be taken up in full by others if you decline.
You will receive more information from Aston Martin and you brokers in the coming weeks so make sure to keep an eye out and stay on top of the rights issue.
However, while the rights issue we see as a positive for the stock, due to the discounted nature of the stock and expected volatility in the coming weeks, we think it’s prudent for the time being to shift the current trading common stock to a
HOLD recommendation.
To be clear. We’re saying take up the rights issue at a substantial discount, but hold on buying the current stock in the market until the price finds a base as the rights become tradable and we’re clearer on where the market prices the company once all stock is trading.
Aston Martin is now a HOLD. But you should take up the right issue in full. You can find the original recommendation here.
Changes to recommendations and reports information
There’s been some confusion recently about where you can find our stock recommendations and our regular weekly updates. So I’m going to clear it all up for you now.
Anything that requires action to take, that means any new recommendation to BUY or any recommendation to SELL, will be listed under a “Stock Alerts” tab on the website. Going forward we will make our headlines easier to see which stock each alert relates to.
Any of our more regular weekly updates will be under the “Updates” tab. Any special reports we deem are necessary at any given time will exist under “Special Reports” but may also from time to time be listed under “Stock Alerts” should they recommend a new stock (or stocks).
The “Issues” tab will be removed, all legacy recommendations that are still active will be under the new “Stock Alerts” tab.
Everything else stays the same for now.
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.
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 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.
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.
Sam Volkering
Editor, Frontier Tech Investor
Elliott Playle
Analyst, Frontier Tech Investor
