British Energy ready to press nuclear button

Published on Sunday 18 June 2006 01:25

BRITISH Energy boss Bill Coley is expected to give further impetus to the nuclear lobby this week by revealing he is now in a position to invest in a new generation of power stations.

While he is likely to disappoint investors hoping for news of an early reintroduction of dividend payments, he will use the company's financial turnaround to say BE can play a key role in meeting the UK's future energy needs if the government backs nuclear.

Tony Blair recently declared that nuclear power is "back on the agenda with a vengeance" and the results of his energy review are due shortly.

Livingston-based BE, which generates around 20% of the UK's electricity, was narrowly saved from falling into administration in 2003 by a 5bn government rescue package after being hit by falling power prices and high operating costs.

Citigroup, Goldman Sachs and Deutsche Bank last week produced research asking whether BE may use this week's annual results to say it is to bring forward plans to start paying a dividend - pencilled in for after the 2006/7 financial year - on the back of an upturn in the company's fortunes.

Citigroup said: "A key area of interest will be whether BE has changed this stance. However, we think it is unlikely [that the dividend payment will be resumed] until the UK government has sold down some of its economic interest."

Brokers are forecasting EBITDA of between 825m and 894m. The operating EBITDA last year was 94m.

BE operates eight nuclear plants - including Torness in East Lothian and Hunterston B in Ayrshire - and its coal-fired plant at Eggborough in Yorkshire. There has been speculation the Eggborough plant may be split from the rest of the company.

Shares in BE have risen sharply on the back of higher energy prices and, in the longer term, the expectation that the government may give its backing the construction of the next generation of nuclear power stations. Shares which were worth 263p in January 2005 closed on Friday at 669.5p.

This week, analysts will focus on the amount BE receives for selling its electricity. Citigroup expects BE to have forward sold around 75% of its output for the 2006/07 period at an average price of around 45/MWh (mega watt hour). In the third quarter of 2005/6, BE achieved a price of 37.60/MWh. Citigroup said: "We will also be looking to see if BE has secured any further long-term deals."

One legacy of the government's bail-out of BE is a complicated financing system, which results in 65% of BE's earnings above a certain level being paid to the Nuclear Decommissioning Fund.

The fund is supposed to cover the billions needed to pay for the time-consuming and costly process of decommissioning the nuclear generators.

Gordon Brown, the Chancellor, said in March that the government was prepared to sell part of its stake in BE and a decision would be made after the six month-long energy review.

In a research note, Deutsche Bank said: "With the issue of new nuclear build back on the agenda 'with a vengeance', any thoughts on BE's possible involvement would also be of interest to shareholders."

Coley told Scotland on Sunday in December that institutions are waiting until this summer - when Tony Blair will announce the outcome of the government's review of the nuclear industry - before deciding whether to pump billions into building the next generation of nuclear reactors.

He said: "If people can have a degree of certainty that the way is clear to make an investment and build assets, the energy business can find the money.

"I don't believe that there's a shortage of money if investors are certain that the assets can be built. They need signals that would take uncertainty out of the way. I have heard people talk very favourably about nuclear investment."