Rolls-Royce (LSE: RR.) shares got what may be a boost for the future last week. A key step in the introduction of the firm’s SMRs (small modular reactors) was taken. That said, the share price dropped 3% or so on the day of the announcement. Another example where the ‘buy the rumour, sell the news’ maxim rings true once more.
The important details are that a site has been chosen for the first of these mini nuclear power plants. The location, Wylfa, is a former site of a nuclear power plant in Anglesey, Wales. Following the decision, the significance of SMRs was magnified when the administration of a certain blonde-haired president commented on the deal, suggesting a US company could have been used instead.
Golden age
Leaving the politics aside, I’m encouraged by the speed of the decision. The entire point of SMRs is to get unpolluting nuclear energy up and running without the red tape, delays and headaches of a Hinkley Point C. I don’t think it’s an exaggeration to say that cheap nuclear energy could be a game-changer for the country and perhaps the entire world.
What’s the impact on Rolls-Royce shares? Not too much at present. It’s still early days. The government has invested £2.5bn to build three SMRs. Total revenue for the FTSE 100 firm last year was £19bn. But remember, the investment is over a number of years. The SMRs aren’t expected to produce energy until the 2030s either. Another order for six SMRs has been proposed by the Czech Republic but again, they will be on-line years from now.
The real difference-maker will be if these products are viable and can be rolled out on a large scale. One of the government’s cited reasons for investing was indeed with the hope that this technology can become a major export-earner for the UK as we embark on a “golden age of nuclear”.
A buy?
A little cold water perhaps needs pouring at this point. SMRs are an unproven technology. There are only two running in the entire world at present, one in China and one in Russia. The building of even these initial designs could unearth a few unknowns that render the whole project a pipe dream.
There are a lot of great minds aiming to pull it off though. The American firm TerraPower, backed by Bill Gates, is one of the hopefuls in this area. But Rolls-Royce might be the best place of them all to be in the vanguard here.
The company has been working with nuclear engineering for decades. It seems like another world now, but the UK was considered a pioneer of nuclear in the 1950s when it was thought we were ushering in the dawn of the ‘atomic age’. Maybe we’ll get there again.
Combined with a thriving business in power systems and aeroplane engines, I think Rolls-Royce is one to consider.
