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Stocks posted their third down week of 2024, as mixed signals from the Fed and economic data kept traders and investors on edge.

The best-performing concepts are marine ports, the bitcoin concept, and heavy electric equipment.

Considering the different perceptions of the stock, this time TigerPicks chose $NuScale Power(SMR)$ to have a fundamental highlight to help users understand it better.

$NuScale Power(SMR)$

NuScale Power specializes in Small Modular Reactor technology, offering a modular design.

NuScale's technology leverages existing light water reactor frameworks, streamlining the overall design and offering a solution to intermittency and industrial applications.

The company's business model includes licensing fees, equipment sales, and a range of services throughout the power plant's lifecycle. However, financial challenges and investor skepticism remain.

Why $NuScale Power(SMR)$?

NuScale Power, specializing in Small Modular Reactor technology, represents a notable divergence in nuclear power plant design and operation. The company's NuScale Power Module (NPM), each generating 77 Megawatts-electric (MWe), utilizes established nuclear technology with a focus on integration and simplification of components. This includes the elimination of certain conventional systems and the incorporation of passive safety features, aimed at enhancing reliability and safety.

The VOYGR power plant, a key offering from NuScale, is a modular design capable of housing up to 12 NPMs. A fully equipped VOYGR-12 plant would offer a gross output of 924 MWe. The timeline for operational readiness of the first VOYGR plant is set for 2029, with module delivery commencing in 2028.

NuScale's technology leverages existing light water reactor frameworks, integrating the reactor core, steam generators, and pressurizer into a singular vessel. This approach streamlines the overall design, potentially reducing complexities inherent in traditional nuclear plant structures. The VOYGR series, available in various configurations (VOYGR-4, VOYGR-6, VOYGR-12), supports scalable implementation starting from a single module. A notable feature of NuScale's design is the provision for an unlimited coping period, facilitating safe shutdown without operator intervention, external power, or additional water - a critical aspect in ensuring plant safety under adverse conditions.

Technology

NuScale Power aims to address the inherent limitations of renewable energy sources such as solar and wind power, notably their intermittency and grid integration challenges. Solar and wind energies are not consistently available (e.g., solar energy is absent at night, wind energy is variable), leading to lower capacity factors compared to nuclear power. Nuclear plants typically have a higher capacity factor of 92.4%, markedly surpassing solar (24.2%), wind (35.3%), and hydro (40.7%), indicating their more consistent approach to maximum capacity production.

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Statista

Small Modular Reactors (SMRs) are gaining traction as a feasible alternative, offering competitive costs, carbon-free emissions, and reliability. Their design allows for scalability and factory-based manufacturing, potentially achieving economies of scale and reduced construction timelines. SMRs employ various technologies, including water-cooled reactors, fast neutron reactors, high-temperature gas reactors, and molten salt reactors. Their simplicity in design and construction, compared to larger nuclear plants, facilitates easier operation and maintenance.

The safety design of SMRs is a critical aspect, featuring smaller cores and multiple barriers to prevent fission product release, enabling them to be situated closer to demand centers. They present lower initial capital costs and shorter construction periods than traditional large-scale nuclear facilities, with the flexibility to match customer needs and expand incrementally.

In terms of environmental impact, SMRs are more land and resource-efficient per MWh than wind or solar projects, requiring less construction material. This efficiency extends to a reduced need for extensive transmission infrastructure due to their proximity to end-users. Additionally, SMRs provide ancillary benefits such as the generation of process heat.

Business model

NuScale Power has structured its offerings around three sizes of VOYGR power plants, accommodating 1 to 12 Nuclear Power Modules (NPMs). Clients interested in deploying a VOYGR power plant are required to obtain a license from NuScale and incur an initial technology licensing fee. The company's business model also includes the sale of major nuclear engineered equipment, notably the NPMs, directly to the customer.

NuScale's involvement extends beyond equipment sales, as it plans to provide an extensive range of services throughout the VOYGR power plant's lifecycle, beginning approximately eight years prior to operational commencement. These services encompass regulatory licensing support, particularly in the U.S. This includes assistance with NRC regulation compliance and regulatory approval processes.

The company's service portfolio also includes support for start-up testing, commissioning, and ongoing operational management of the power plant. This encompasses handling NRC-required inspections, tests, analysis, and acceptance criteria. NuScale will also assist in NPM mechanical handling, fuel bundle loading and movement, and design engineering management during commercial operation. Further, it will manage operations and maintenance programs, including regulatory compliance reporting support, procurement, spare parts management, and nuclear fuel management, alongside support for outage planning and execution and system verification and validation for safety and non-safety systems.

In the 3Q23 earnings call, the management team acknowledged that a pivotal element of NuScale's strategy involves its partnership with ENTRA1 Energy, an independent entity specializing in energy and infrastructure. NuScale's role is predominantly as an original equipment designer and overseer of manufacturing for U.S. NRC-approved SMR technology, rather than direct power sales or power plant construction.

The collaboration with ENTRA1 is significant, as ENTRA1 will be responsible for developing, managing, owning, and operating energy plants utilizing NuScale's SMR technology. As a project developer, ENTRA1 integrates various components-technology, construction, financing, operation, and ownership-to deliver a comprehensive solution for energy plant projects.

Recent developments

The Front-End Engineering Design (FEED) Phase 1 for the RoPower project in Romania, involving over 23 activities and valued at nearly $28 million, represents a foundational step towards the project's subsequent phases. A notable advancement in this context is the approval of the licensing basis document for the Real Power project by the Romanian regulator, a development that streamlines the licensing process for NuScale's endeavors in Romania.

Conversely, the termination of the Carbon Free Power Project (CFPP) collaboration between NuScale Power and UAMPS marks a drawback in deployment efforts. However, it concurrently serves as an indicator of the SMR technology's feasibility. The project underwent various development stages, including detailed scheduling, licensing preparations, and design advancements. The decision to discontinue the project was driven by insufficient subscription levels, suggesting challenges in market readiness rather than technological inadequacies.

This development, while a setback, does not signal a definitive halt in NuScale's journey. The company's alliances with entities like ENTRA1 and Standard Power remain pivotal. These partnerships are anticipated to play a critical role in mitigating the commercial risks similar to those encountered in the CFPP.

Financials

In the third quarter of 2023, NuScale Power reported revenues of $7 million, juxtaposed against R&D expenses totaling $63.7 million. The elevated R&D costs included a significant $35.4 million expense associated with the termination of the Carbon Free Power Project (CFPP). This termination charge was a primary factor in the quarterly net loss of $58.3 million. However, this loss was partially mitigated by lower compensation costs and unrealized gains on warrants.

The company's financial position at the end of the quarter was characterized by $197 million in cash reserves, which comprised $79 million in restricted cash earmarked for letters of credit and $118 million in unrestricted cash. Notably, the balance sheet reflected a CFPP-related liability of $34.5 million, representing estimated net development costs incurred. This period also saw a strategic shift in asset categorization in response to the anticipated termination of the CFPP contract.

Looking ahead to the fourth quarter, financial statements are expected to account for the final settlement related to the CFPP and the consequent release of cash from letters of credit. In its 3Q23 conference call, NuScale indicated its contemplation of selective capital raising initiatives as a means to sustain liquidity.

Valuation & risks

NuScale Power's technology, approved in the U.S. and extensively tested, indeed presents a compelling narrative. However, the path to commercialization poses significant challenges. The company's business model exhibits potential for economic viability in the medium to long term as it scales up. In the short term, however, it faces the high costs associated with capital investment and operational ramp-up.

This financial strain is evident in NuScale's income statement and cash flow. We estimate that he company's annual cash-burn is nearing $150 million, and a reliable revenue stream capable of offsetting these costs remains elusive. By the end of 2023, our estimates suggest that NuScale's available funds may be insufficient to cover a full year of operations, especially if restricted cash is excluded, posing a substantial liquidity risk. This risk could lead to shareholder dilution or, in a worst-case scenario, bankruptcy.

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Seeking Alpha

NuScale's response to this situation includes a significant workforce reduction of 28%, aiming to achieve annualized savings of $50 to $60 million. Nevertheless, the necessity for additional financing appears inevitable.

Investor skepticism is further compounded by concerns regarding the capabilities of NuScale's partners, Standard Power and ENTRA1, whose limited online presence and relative obscurity raise doubts about their project execution abilities. While NuScale's management insists on the thorough vetting of clients and partners, including ENTRA1 and Standard Power, investor confidence remains shaky.

Given the imminent need for capital, potential dilution, and the company's current valuation appearing high relative to peers, a cautious stance is advisable. The company's price-to-sales (P/S) multiple has been declining, and the stock price is likely to remain under pressure..

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Seeking Alpha

In summary, until NuScale demonstrates a viable and clear strategy for overcoming its current challenges, it may be prudent to remain on the sidelines regarding investment in the company. The absence of a clear forward path and unencouraging actions from the company's insiders further exacerbate these concerns.

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Stock Price Forecast:

Here are the target price forecasts for the next 12 months from analysts.

Based on 3 Wall Street analysts offering 12 month price targets for NuScale Power in the last 3 months. The average price target is $6.13 with a high forecast of $8.00 and a low forecast of $4.25. The average price target represents a 11.66% change from the last price of $5.49.

Resource:

https://seekingalpha.com/article/4663924-nuscale-power-navigating-the-high-seas-of-smr-commercialization-and-financial-headwinds

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