The market looked on with incredulity when the Rolls-Royce (LSE:RR) share price surged about 20% a couple of weeks ago. Why did this happen? Was there anything tangible behind this surge? Let’s take a closer look.
What happened to the Rolls-Royce share price?
Very late in the day on 25 March, I took a final look at my Rolls-Royce holdings before the weekend and was gobsmacked. The share price had soared from about 91p to an intraday high of 111p, a move of 21.9%. That said, the stock currently trades at 97p.
The move higher is likely to have been caused by an alert from market intelligence firm, Betaville. It published an ‘uncooked alert’, otherwise known as market gossip, stating that Rolls-Royce was potentially on the brink of a “major corporate transaction”.
Investors gave some credence to this intelligence as Betaville had correctly predicted a bid for Homeserve the previous day. There was even Rolls-Royce takeover speculation.
I can see a number of potential developments that could have been behind the Betaville report.
Might the report have been referring to new a contract with the US Air Force for its Future Long-Range Assault Aircraft (FLRAA) programme?
On the other hand, Air India placed a big order for A350 jets that run on Rolls-Royce engines. Could this be the “major corporate transaction”?
Has the firm made progress on its electric aircraft experiment? Well, I think the answer lay elsewhere and that the Rolls-Royce nuclear energy programme may have been the reason for Betaville’s alert.
Hitting the nuclear button
The UK government is set to publish its Energy Security Strategy today. From what we know, it could be turning to nuclear energy to power the country through the future.
The supply concerns for oil and gas brought on by the war in Ukraine have accelerated the move to nuclear.
Although we await the publication of the strategy, and confirmation of any role Rolls-Royce might play, it is slated to include £100bn in funding for a number of new nuclear power stations.
It had been delayed from a scheduled release around two weeks ago. This would have coincided with the major corporate transaction alert, but disagreements between Number 10 and the Treasury delayed its publication.
Enter Rolls-Royce. It has been developing its technology for Small Modular Reactors (SMRs) — mini nuclear power stations that could provide the same amount of energy as 150 wind turbines.
The company has gained funding from investors like the Qatari Sovereign Wealth Fund, alongside the UK government.
While I don’t know for certain what is behind the Betaville report that triggered the price move, I think that the SMR project will be central to energy security for decades to come regardless. At some point, therefore, I think the Rolls-Royce share price could skyrocket as its technology is used far more widely.
For 2021, however, revenue declined by about £200m. There is always the risk that this downtrend continues, although I think this unlikely.
Overall, this is a company building technology that will probably become central to our lives in the future. I think the firm will begin to yield good results soon. As I think the Rolls-Royce share price could explode, I will be adding shares to my portfolio as soon as possible.