In particular, an industry-consortium led by Rolls Royce and the UK government will invest more than £400 million into building a fleet of mini nuclear reactors across the country. The technology is called the Small Modular Reactor (SMR). In doing so, the UK government hopes to achieve energy pricing stability and promote the development of clean energy (see GMG recent piece on Climate Change).
According to Rolls Royce’s RNS today, initial funding for the SMR technology is secured. Each SMR will around £2 billion, and one single SMR power station will ‘occupy the footprint of two football pitches and power approximately one million homes‘.
These multi-year construction contracts will boost Rolls Royce’s long-term revenue.
At the time of writing, Rolls Royce trades 5 percent higher at 149p.
Rolls Royce share price rallied this morning on news that it will be building nuclear infrastructure in the country.
For shareholders, this is a much-needed boost. For months, the engineering stock has been struggling. Prices were flip-flopping around the 100p mark for months. As recently as July, Roll Royce traded as low as 88p.
After a 68 percent rally from that low point, should we sell? Taking some chips off the table is always an option, as you can recycle some of the profits into other more attractive bets.
Technically, Rolls Royce is testing the major resistance level at 150p. It may or may not break it this time round. Some investors may have used today’s rally to off-load some equity holdings, thus creating a natural technical ceiling (selling point).
Rolls Royce’s medium-term is bullish, although it will not a straightforward rise. A grinding rally into the year-end is our most optimistic view.
Rolls Royce was a blue chip company in the FTSE 100. But the pandemic has decimated its business.
While the company reported revenue of £11.82 billion for 2020, losses totalled £3.17 billion. So dire was Roll Royce’s balance sheet last year that the company was forced into a 10-for-3 rights issue and cancelled the dividend for the first time since 1987.
But since the introduction of the Covid-19 vaccine last November, the stock was re-rerated into a better position. Still, the company needs a full reopening of the world economy to achieve better cash flow positions.
As things stand, the analyst community is broadly negative about Rolls Royce’s prospects. According to the Financial Times, out of 18 brokers, 11 put out a recommendation of ‘Sell’, ‘Underperform’ or ‘Hold’. Price targets range from 160p (most optimistic) to 52p. These predictions are not exactly bullish.
Therefore, investors should watch for a consolidation should Roll Royce’s share price climb further.