The devastation caused by Japan's Fukushima nuclear plant disaster damaged public faith in nuclear energy. Germany, Italy and Switzerland turned their backs on the fuel and China put its expansion plans on hold. But recently there have been signs of hope for the industry.
In March, Washington gave the green light to two new reactors in South Carolina at a total cost of $11bn. This was the second such approval in 2012 after a drought of 30 years.
Last month, China's biggest nuclear operator said that Beijing was also soon "very likely" to resume authorisation of its gigantic build-out plans. This is where Areva comes in. With its shares down 50% since Fukushima, now looks a good time to jump on board.
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Areva is 83% owned by the French state and specialises in the design, construction and maintenance of nuclear facilities, as well as mining/enriching uranium and decommissioning plants. Its third-generation reactors are designed to withstand earthquakes and a direct hit from a plane crash.
Its client roster includes 95% of all nuclear facilities worldwide and it derives more than 80% of its turnover from recurring activities. The €45.6bn orderbook represents in excess of five years' revenues. Better still, CEO Luc Oursel predicts the industry will expand 50% by 2030.
Fukushima has obviously slowed demand down to a snail's pace, but looking forward "we think this will pick up soon", Mr Oursel said three weeks ago. Elsewhere Areva is beefing up its renewables division too.
Areva (Paris: AREVA), rated OUTPERFORM by Cheuvreux
For 2012 and 2013, the board expects cash profits of not less than €750m and €1.5bn respectively. However, I believe that by 2015 Areva should be able to churn out turnover and earnings before interest, tax, depreciation and amortisation (EBITDA) of €11bn and €3bn. On this basis, assuming a ten-times multiple and adjusting for net debt of €3.5bn, a €1.3bn pension deficit, €6bn of legacy liabilities and discounting back at 10%, it is worth around €25 a share.
The sector could come under pressure if Nicolas Sarkozy loses the forthcoming French presidential elections and the new leader withdraws the government's strong support. Order deferrals, foreign exchange volatility and project delays are other potential risks. Yet Areva offers a secular growth story, great technology and a huge backlog. Broker Cheuvreux has a price target price of €24.8 and first quarter (Q1) results are due out on 26 April.
Rating: BUY at €15.7 (Market cap €6bn)
Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments. See www.moneyweek.com/PGI, or phone 020-7633 3634 for more.
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