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Rolls-Royce nuclear may eventually top £10 billion, says Morgan Stanley analyst
The company faces competition and must produce cost-effective reactors to succeed, with profits anticipated from the 2030s.
The UK’s decision to pick Rolls-Royce Holdings Plc for the development of its first small modular reactors may lead to a nuclear business worth £10 billion ($13.5 billion) in the next few years, according to a Morgan Stanley analyst.
It’s a long-term and speculative forecast by analyst Ross Law, who currently estimates the value of the Rolls-Royce business at about £1 billion. Shares in the London-based company, best known for its commercial aircraft engines, rose to a record high on the news before retreating.
The “important milestone” should “ultimately improve export opportunities as well as the market’s perceived value of the SMR business,” wrote Law in a note. He said the current share price gives “virtually no value” to the small modular reactor, or SMR, business.
While significant revenue and profits are not expected until the 2030s, Law thinks markets will assign value as soon as firm contracts are signed and down payments are made.
Qatar Investment Authority, Constellation Generation Ltd., BNF Resources and CEZ AS are investors in Rolls-Royce SMR, according to its website.
Law’s projected valuation ignores any potential from supplying aftermarket services or other opportunities abroad. Law noted that the company has memorandums of understanding with Estonia, Turkey and the Czech Republic.
The success of Rolls-Royce’s SMR business will likely depend on whether it can deliver reactors that are cheaper and less complex than traditional plants. One of the company’s SMR competitors, NuScale Power Corp., canceled plans to build a power plant in the US in 2023 after project costs soared.
