Centrica’s final Sizewell C deal is ‘attractive’, promises solid returns; stock up

The UK government has approved the £38 billion Sizewell C nuclear plant, a significant infrastructure project backed by a consortium including the British government (44.9%), La Caisse (20%), and Centrica PLC (15%). This approval signals renewed momentum for nuclear energy in Europe, aiming for energy independence and climate targets. Centrica's shares surged over 4% following the news, as the company projects an attractive 10.8% real return on equity and an IRR exceeding 12% from its £1.3 billion investment, with analysts affirming the strong financial terms for Centrica despite some market uncertainty.

Analysis

The U.K. government's approval of the £38 billion Sizewell C nuclear plant marks a significant milestone for European energy infrastructure, signaling renewed policy momentum towards nuclear power to enhance energy independence and meet climate objectives. For Centrica PLC (CNA), which holds a 15% stake, the financial implications are substantial and viewed positively by the market, as evidenced by a greater than 4% rise in its share price. The company's £1.3 billion investment is structured under an attractive framework, projecting a 10.8% allowed real return on equity and an internal rate of return exceeding 12%. The investment is expected to be earnings accretive from 2026, with EBITDA contributions growing from £50 million by 2028 to approximately £150 million upon commercial operation. Analyst commentary reinforces this positive outlook; RBC highlighted the protections of the Regulated Asset Base (RAB) model, while Jefferies noted the terms are attractive and estimated a potential Net Present Value impact of 20-25 pence per share, suggesting the full value may not be immediately priced in due to long-term project uncertainties.

Key Decisions for Investors

• Investors should re-evaluate Centrica's long-term earnings profile, as the Sizewell C project is projected to be accretive from 2026 and provides a clear, regulated path to significant future cash flow and EBITDA growth.
• Consider the potential valuation gap in Centrica's shares, as analyst commentary suggests the full positive net present value of the Sizewell C deal may not be immediately priced in, presenting a possible opportunity for those with a long-term investment horizon.
• Monitor developments in the European nuclear energy sector, as this approval serves as a key indicator of growing policy support and could signal further opportunities in companies exposed to the energy independence and decarbonization themes.