The Rolls-Royce (LSE:RR.) share price was the second-best performer on the FTSE 100 in 2024. Since the pandemic, the group’s shares have risen more than 600%. However, things have been a bit quieter in 2025. Since the start of the year, the stock’s increased by a more modest 6.4%.
Going for growth
To try and keep earlier momentum going, the company’s been looking at potential new markets. One that appeals to me is that of small modular reactors (SMRs). These factory-built mini nuclear power stations are based on a technology that started generating electricity in 1951. They’re intended to be cheaper, quicker to construct and more easily maintained than their larger cousins.
When construction started on Hinkley Point C, it was expected to be ready by Christmas 2017, and cost £18bn-£24bn. Today, it’s not going to be finished until 2031. And the final cost could be £48bn. This overrun means the operators will be paid £124.65/MWh — over 30% more than originally planned.
Rolls-Royce claims its SMRs will initially cost £2.5bn, and have a 60-year lifespan. The intention is to generate electricity for £40-£60/MWh. At this price, the International Energy Agency claims they’ll be competitive with offshore wind and large-scale hydro projects.
But the technology’s unproven. And nuclear power has its critics. Greenpeace says it’s expensive, dangerous and produces too much toxic waste.
But despite this, Rolls-Royce is pressing ahead with its development programme. However, government delays means the first SMR’s unlikely to be generating electricity in the UK until — at the earliest — 2032. Initially, the engineering-cum-technology group had hoped to be up and running by 2029. To try and speed up delivery, it’s been holding discussions with potential overseas customers.
The billion-dollar question
So what could this mean for the Rolls-Royce share price? Given that we’re at least five years away from the first revenues earned, it’s difficult to say. But a report from IDTechEx predicts that the SMR market will — in 2033 — be worth $72.4bn, growing to $295, by 2043.
If Rolls-Royce could secure 10% of this — and the company achieves its mid-term (no date given) target of a 15% operating margin — it could initially add $1.1bn (£880m) to its bottom line.
At the time of writing (31 January), the company’s shares trade on a multiple of 20 times analysts’ forecasts of 2027 earnings per share (29.3p).
On this basis, SMRs could add £17.6bn to the group’s market-cap, which is currently £50bn. If realised, the group’s shares would be 35% higher.
Looking further ahead to 2043, the company’s stock market valuation could be £70bn more, easily taking its share price over the £10 barrier.
Don’t get carried away
However, these ‘back-of-an-envelope’ calculations must be treated with caution. The timescales involved are enormous and a huge amount could go wrong between then and now.
But I do think SMRs could be a clever way of helping the world move away from fossil fuels. And even if Rolls-Royce is only able to secure a tiny fraction of the global market, it can only help its share price.
That’s why the stock could be worth considering as part of a long-term portfolio.
This post was originally published on Motley Fool
