Now that fossil-fuel prices have soared over the past two years, nuclear power is right back on the political agenda. Encouragingly, the Government’s stance to the industry has warmed, and there is even talk of plans to build new reactors. Currently, there are 28 nuclear sites in the UK, which provide about 20% of the nation’s electricity. Eight facilities are operated by British Energy, with the remaining 20 under the control of the Nuclear Decommissioning Agency. The majority of the agency’s sites are nearing the end of their active lives. The Government estimates the cost of decommissioning will be a massive £63bn, with Sellafield taking the largest chunk at £23bn. So this week’s stock pick will be in big demand:
Gamble of the week: International Nuclear Solutions (Aim: INS, 34p)
International Nuclear Solutions (INS) looks like something of a hidden gem. Until recently, the firm was a subsidiary of Robotic Technology Systems (RTS), but on 31 May 2006, it demerged and began trading on Aim as a separately quoted stock. The flotation didn’t attract too much press coverage, owing partly to the fickleness of the equities market at that time. But investors could soon become more conscious of the company, as it is scheduled to deliver its first set of results on Tuesday 26 September.
International Nuclear Solutions is a specialist provider of nuclear engineering and consultancy services and is the only UK publicly traded stock that focuses purely on the nuclear industry. The firm handles, processes and stores nuclear waste and also engages in site clean-up and decommissioning work. In addition, International Nuclear Solutions provides support for the servicing of redundant facilities – the reprocessing of spent fuel at Sellafield, for example.
The firm has 25 years of experience in the industry, a long-standing relationship with British Nuclear Fuels (which manages 15 sites on behalf of the Nuclear Decommissioning Agency) and a proven track record at Sellafield. As well as this decommissioning work, there are longer-term opportunities in the UK defence and overseas markets, especially via partnership agreements in North America.
International Nuclear Solution’s order book is currently around £15m, with sales forecast to be £27m this year, generating earnings per share of 2.6p. On 17 July, it signed a new contract with Carillion for an initial value of £3m, with the possibility of £15m of follow-on work. As such, earnings per share are predicted to rise to 2.9p and 3.4p respectively in 2007 and 2008. That means that at 34p, the firm trades on a 2007 p/e multiple of 12.5, which offers good value, given the uniqueness of the business and its growth potential.
As far as risks go, dealing with the Government can be fraught with danger, particularly if policy direction changes after an election or leadership contest. Also, competition is increasing and many larger firms, such as AMEC, Serco and Bechtel, are bulking up their operations in this potentially lucrative sector. However, on balance, I believe International Nuclear Solutions is well placed to benefit from the secular upswing across the nuclear industry.
Recommendation: BUY at 34p (market cap £21.5m)
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