Some government (re)announcements are hellbent on producing the warmest of glows. Take the latest on Sizewell C.
As this month’s business secretary Grant Shapps declared, here is “the first state backing of a nuclear project in over 30 years, part of the UK’s biggest step yet in the journey to energy freedom”. Not only that. Beyond the Suffolk nuke, ministers are cooking up a “pipeline” of projects, beavering away “at pace to set up Great British Nuclear”.
True, that does sound uncannily familiar to another Shapps creation — Great British Railways — unveiled in May 2021 and still stuck in a siding. But you get the picture: a nuclear nirvana has dawned. So, how much is the government sticking in, you ask? £679 million. Or even less than the £700 million promised by Boris Johnson on his way out of Downing Street. You don’t need to be a campaigner from the Stop Sizewell C brigade to spot how “paltry” a sum that is. Or that “there is still a huge amount of money to find” and that “no one is prepared to come clean about what the ultimate cost will be”.
The bill for Sizewell C is likely to top £30 billion. And the government didn’t even fully disclose what its “historic” £679 million is for. About £100 million is to buy out joint-project developer CGN, the Chinese state-backed group whose very presence would have killed off any chance of luring US investors. The rest is to take a 50 per cent share of the costs of getting the project to a “final investment decision”: money the government was forced to put in after the other developer, France’s EDF, refused to spend any more on Sizewell unless Britain stumped up too. Where is the rest of the money coming from?
On a one-third, two-thirds split of equity and debt, Sizewell requires a £10 billion equity cheque — possibly more if lending banks think that structure too racy. Talk is that EDF may cough up for 20 per cent, with the UK taxpayer also taking a fifth. But that still leaves £6 billion. The government’s adviser, Barclays, is trying to drum up support. And the hope is that the regulated asset base (RAB) funding model, which leaves consumers on the hook for some construction cost overruns, will tempt investors.
Yet that’s no dead cert. The infrastructure market has slowed thanks to rising interest rates. UK pension funds have been burnt by the LDI crisis. And the same renewable energy investors Britain needs for Sizewell have just been done over by the windfall tax on electricity generators, aiming to raise £14 billion by 2028. Given nuclear’s guaranteed cost overruns, any regulator under the RAB model will also insist on a vast contingency fund, say, £5 billion-plus. Much may ride on how much of that ministers agree to pass on to electricity consumers — or the taxpayer.
The good news for nuclear fans? That some investors think the RAB model could make new plants financeable: it’ll cut backers’ cost of capital and has shown it can lure private funds into other projects including the Thames Tideway super sewer, Heathrow Terminal 5 and energy networks. The bad? That they think the government will have to put in at least £5 billion equity to get Sizewell built and also insulate investors from a big chunk of cost-overruns. Shapps shouldn’t pretend that a sub-£700 million investment cuts it as nuclear fuel.
EasyJet uplift
Finally, a sunnier view from the easyJet cockpit window. Ask the boss, Johan Lundgren, how he’s doing and he says “absolutely amazing”: proof, maybe, of what record fourth-quarter underlying earnings can do. After a spate of cancelled flights, the summer three months saw smoother flying, with earnings before tax and other one-offs up to £674 million — versus just £82 million in 2021’s fourth quarter.
True, that failed to stop a third successive full year of pre-tax losses, even if last time’s £1.04 billion were cut to £208 million. But after a 242 per cent leap in passengers to 69.7 million, Lundgren is at least shooting for a return to pre-Covid capacity for next summer, already signing up 1,500 of a target 2,100 extra cabin crew to avoid any rerun of staff shortages. His survey of 2,000 consumers is probably right, too, that a recession won’t stop people going on holiday.
The heat has been on Lundgren after two big refuellings: June 2020’s £419 million at 703p and a £1.2 billion rights issue at 410p in September last year. But post-Covid he’s also built a more flexible operation — some pilots only flying nine months a year, with 21 planes located at lower-cost bases — and grabbed share in key markets, including Gatwick, Lisbon and the Greek islands. As he puts it: “Our main competitor is the legacy airlines.” He also expects an uplift of at least 20 per cent in passenger revenue per seat in the first quarter.
Up from 285p in six weeks, the shares slipped 2.6 per cent to 383p. And one good quarter is no proof easyJet won’t mess up again. But at last things look less turbulent.
Pacifying Ping
More ammo for Ping An, the Chinese investor calling for an HSBC break-up. The bank’s just sold its Canadian wing for $10.1 billion to Royal Bank of Canada: a deal that, in the words of chief executive Noel Quinn, brings “material upside”. Too right. On the maths of Jefferies analyst Joseph Dickerson, the sale’s at three times tangible book value. Compare what HSBC trades on: just 0.8 times, on shares up 4.4 per cent to 510.3p.
Repeat Canada’s sale everywhere and you’d break up the whole of HSBC. Only the bank would dispute that logic. Subscale but profitable, Canada was a rare case — unlike France, say, whose disposal incurred a $2.4 billion hit. Quinn hopes to pacify Ping An with a cash return. It may ask for more Canadas.
