International Public Partnerships Ltd (LSE:INPP) made an unexpected entry into the nuclear sector with its investment in the new Sizewell C power plant, analysts said, as the nuclear space is traditionally avoided by listed infrastructure funds.
Analyst Iain Scouller noted that while the investment is being presented as a continuation of INPP's "first-mover advantage" and investment manager Amber's "heritage in market innovation," the shift represents a marked change in risk profile that may not align with investor expectations.
Amber, INPP’s manager, will acquire a 7.6% stake in Sizewell C, including INPP’s 3%, with an option to raise this to 10%.
However, Scouller noted a lack of clarity on risk and return metrics, with Amber refering to a low-teens IRR, but a separate announcement from Centrica, which is taking a 15% stake, has disclosed more detailed expectations, including a 10.8% real return on equity during construction.
The investment will extend the INPP trust’s dividend coverage forecast from 20 to 25 years and increase its weighted average life from 34 to 38 years by 2030.
However, funding the £250 million commitment over five years could prove challenging, especially given INPP’s current discount to NAV and the need to sell mature assets to raise cash.
Talks between Amber and the government would have begun when INPP was trading on a premium to NAV and was able to regularly issue equity.
"INPP is in a very different position today and how to finance the £250 million investment, at a rate of £50 million a year is a good question," the analyst said, noting that the initial payment of £30 million due by the end of 2025 will be funded from the recent sale of schools projects.
"It appears further six monthly £25 million tranches will need to be funded from sales of existing mature investments. Hopefully, market pricing of PPP assets will at worst remain stable to allow these exits."
Scouller also believes the investment "increasingly makes INPP appear to be a 'quasi-utility'" and could turn off some ESG-focused investors, as he notes there are differing perspectives on the ethics of nuclear energy.
"We don't think having exposure to nuclear is likely to make investors keener to invest in INPP and for some it may be the opposite."
Despite some reservations, Stifel maintained a positive recommendation on the shares, citing INPP’s track record of dividend growth and wide discount.