nuclear-news

NuScale Power: Cash Burn, Dilution And Insider Selling

Seeking Alpha, George Theodosi Sep. 06, 2024 

Summary

Sell-side analysts expect rapid YoY revenue growth, which assumes the RoPower Project progresses and/or more contract wins with new customers.

NuScale is a Small-Modular Reactor designer, which is expected to see significant growth in the years ahead but competes in a crowded field of new and developing SMR technologies.

With 20% short interest, positive project announcements could trigger a short squeeze, but I recommend selling due to financial instability and ongoing dilution risks (20% dilution already past 12 month).

Introduction and Background

NuScale (NYSE:SMR) is an overhyped but well-timed 2022 SPAC which raised $380m from a $1.9bn valuation at the time. On a fully dilutive basis, the company trades around $1.85bn (Market cap) currently with shares priced around $7.59. The company designs “NuScale Power Modules” which are uranium fed light water reactors for nuclear power plants.

These are SMRs (Small Modular Reactors) which have been newly implemented by some global superpowers as part of their clean energy mix. The US has over 50 nuclear power plants with over 90 nuclear reactors but no SMRs. NuScale is one of the few US OEMs at the forefront of winning a US SMR project………………………..

NuScale is now waiting for a design approval on a 77mw SMR, which is expected to be approved in 2025. This was upgraded from the originally approved 50mw SMR, where NuScale engineers realised they could increase the power to 77mw without any significant design changes.

The modules can be used in an array of 4, 6 and 12 modules.

1. VOYGR-4 = 308mw
2. VOYGR-6 = 462mw
3. VOYGR-12 = 924mw (design expected to complete EOY) – competes with large reactor technologies such as Vogtle electric

1. plant modules in Georgia which put out more than 1000mw+ per reactor.

NuScale is yet to build and install a project. In 2014, NuScale announced they’d been selected by UAMPS (Utah Associated Municipal Power Systems) to build the first SMR project in the US, known as the Carbon Free Power Project in Idaho.

After 7 years and several design changes, in November 2023 the project was cancelled. UAMPS and NuScale mutually agreed to end the project, seeing too much financial risk as costs surged 53%.

This is a common theme in nuclear energy, the new reactors at Vogtle in Georgia faced extreme delays (7yrs longer than expected) and were way over their original budget. This has likely worsened post-2020 due to supply chain shortages and higher commodity costs. Today, NuScale’s key project is the RoPower nuclear power project in Romania. The project is considering 6 NuScale reactor modules and is in the Feed (Front-End Engineering Design) phase, which can last several years……………………………………………………

Without a nuclear engineering background, it’s hard to draw comparisons between different SMRs. There are more than 80 SMR technologies in development globally. Unfortunately, I cannot comment on how NuScale is positioned vs. competitors, however in speaking with analysts it seems potential customers are waiting to see how SMR technology evolves before talking with OEMs. In the short term, it doesn’t seem new customer commitments are imminent.

Some Concerning Signs

Overall, NuScale is interesting; however, there is reason to believe this company is struggling under the hood. Even if they are successful, years of cash burn could force the business to become over leveraged or dilutive for shareholders. The current cash level is $130m, but analysts are suggesting FCF burn of $123m this year and $85m in FY25…………………………….

What makes this more concerning is the continuous aggressive selling from insiders after the rally from a low 2023. 

Also, the lifecycle of taking a project from Pre-FEED to having a site operation is the best part of the decade. Without NuScale having scaled up manufacturing, at what point do they become profitable?

……………………………………….. While the NuScale’s technology certainly deserves merit, there’s a large difference between developing an SMR and successfully selling/negotiating back-and-forth with US states or municipalities for a nuclear project.

I question the balance sheet health of the company as the path to profitability appears vague, with the quarterly cash burn and highly active insider selling I would recommend investors “sell” as this pattern (especially for SPACs) usually signals even more dilution (20% dilution already over LTM).
https://seekingalpha.com/article/4719640-nuscale-power-cash-burn-dilution-and-insider-selling

September 9, 2024 - Posted by Christina Macpherson | Uncategorized