Rolls-Royce Holdings PLC (LSE:RR.)’s place on the shortlist to supply the UK with new mini-nuclear reactors could pave the way for growth in value, analysts have said.
Though Citi Group noted that a contract to supply such small modular reactors (SMRs) could be worth between 7p and 8p a share, there is scope for this to grow, the bank said.
“This only replaces existing nuclear power plants,” Citi said while discussing the prospect of government contracts, which themselves are yet to be detailed.
“Replacing at least part of the fossil power generation capacity, exports and licences to other countries could be worth significantly more.”
Rolls-Royce was among six companies shortlisted for government backing to build smaller, potentially cheaper and more efficient, nuclear reactors over the next decade.
This itself presents a double-edged sword though, Citi said.
Of course, Rolls-Royce moving to the next stage of the government’s SMR competition is good news, given it potentially opens the company up to hefty grants from the government.
However, the lack of backing solely for Rolls-Royce - described by Citi as the UK’s “national champion” - could make the stock slightly less appealing, given the remaining competition.
Shares in Rolls-Royce slipped 0.7% to 215p.