Rolls-Royce is positioning itself for significant growth with its focus on small modular reactors (SMRs), aligning with global trends toward sustainable energy. The company is taken aback by the enthusiasm surrounding new partnerships and government cooperation aimed at developing this advanced technology.
According to Alan Woods, Director of Strategy and Business Development at Rolls-Royce SMR, "Hungary is an experienced and credible nuclear nation and our work in Central Europe – including our strategic partnership with Czech utility, ČEZ – means there is a huge opportunity in the region." This cooperation supports Hungary’s desire to utilize innovative SMR technology, as highlighted by Hungarian Foreign Minister Péter Szijjártó's remarks during his recent meeting with British Foreign Secretary David Lammy. Szijjártó stated, "If this technology makes its way, Hungary would clearly be interested in using it," demonstrating the growing interest from countries seeking cleaner energy solutions.
The rise of SMRs is noteworthy because they promise to be cheaper, quicker to build, and easier to maintain than traditional large-scale reactors. This advancement is significant, especially following the tumultuous timeline of projects like Hinkley Point C, which has seen staggering cost overruns and delays. Initially projected to cost between £18bn-£24bn and to be operational by 2017, Hinkley Point C is now expected to finish around 2031 with potential final costs soaring to £48bn. The operators are set to receive £124.65 per megawatt-hour (MWh), over 30% more than originally anticipated, underlining the urgent need for more streamlined nuclear energy solutions.
Rolls-Royce’s approach with its SMRs plans to offer competitive power costs between £40-£60/MWh, with initial investments pegged at £2.5bn per unit and operational lifespans stretching to 60 years. This pricing, if achievable, could make SMRs competitive with renewable energy sources like offshore wind and hydroelectric power, as affirmed by the International Energy Agency.
Despite the allure of this unproven technology, criticism remains significant. Activist group Greenpeace argues against nuclear energy, citing risks associated with its production and the concerning toxic waste generated. Nonetheless, Rolls-Royce is moving forward with its development program, even as government regulations and delays suggest the first SMR won't likely generate electricity until at least 2032. Originally, the company's ambition was to have these reactors operational by 2029, indicating shifts are necessary as the company engages with potential international customers to mitigate these delays.
The impact of these initiatives on the stock performance of Rolls-Royce is of increasing interest to investors. The share price saw one of the best performances on the FTSE 100, implicatively increasing by over 600% since the onset of the pandemic, demonstrating strong investor confidence. Things have, nevertheless, tempered as of 2025, with only around 6.4% growth since the beginning of the year. So what does this mean for future stock evaluations?
Reports from analysts are cautiously optimistic. A study from IDTechEx anticipates the SMR market will be worth approximately $72.4bn by 2033 and reach upwards of $295bn by 2043. If Rolls-Royce captures just 10% of this burgeoning market, alongside achieving its mid-term operating margin target of 15%, it could add around $1.1bn (£880m) to its bottom line. Current share prices are estimated at 20 times the earnings per share forecast, which, if achieved, could boost the company’s market capitalization by £17.6bn from its current standing of £50bn, resulting in potential share price increases by as much as 35%.
Nevertheless, these projections are clouded by uncertainties. The extended timelines and potential for setbacks could greatly affect real-world outcomes, leading to the necessity for cautious optimism. Even with these caveats, the endeavor to develop SMRs could serve as a key advancement for Rolls-Royce, aiding efforts to transition away from fossil fuels.
Considering the distance to the potential market realization, the stocks associated with Rolls-Royce remain of interest for long-term investment portfolios. Given the uncertain yet promising future of SMRs, the supply of sustainable energy could redefine energy strategies globally and bolster Rolls-Royce’s market presence.