British Energy Group Ordinary 10p (BGY)

Company overview

British Energy Group PLC owns and operates eight nuclear power stations in the UK. The Group also operates a large coal-fired power station at Eggborough. Seven of its nuclear power stations are of the advanced gas-cooled reactor design, while the remaining station is a pressurised water reactor.

HL Comment (13 August 2008)

Nuclear energy has always been and looks likely to remain a very contentious issue. Memories of the disasters at Three Mile Island in the USA and at Chernobyl in the former Soviet Union live long in the memory. The great irony is that despite the massive devastation that a nuclear accident can have on the ground, it may well prove to be one of the few realistic alternatives that mankind has to turn to in order to avoid the potential devastation which global warming may cause. The debate over the future of nuclear energy continues to rage across Europe and with British Energy currently generating around one fifth of the UK’s energy requirements, the group could benefit from government actions to reduce global warming.

The group’s recent first quarter results (13Aug08) again saw production problems resulting in lower profits. Adjusted earnings before deductions (EBITDA) fell to £129m from £253m a year earlier, due primarily to production problems at both the Hartlepool and Heysham sites. Costs for repair to date have also proved higher than expected. Management continued to expect both of these reactors to be back functioning by the third quarter period. Results and production difficulties aside, British Energy remains in discussions with French utility group EdF regarding a possible takeover, with management noting that talks are advanced and continuing. In mid May (2008) management confirmed that offers had been received, valuing the company above 680p per share.

On balance, negative investor concerns focus on reliability and safety. In addition, a takeover of the company still hangs in the balance. On the positive, a takeover of the company could soon be completed, with the shares up over 50pc over the last 12 months. Furthermore, if the bandwagon for reducing global warming continues to roll and as the finite resource of oil continues to diminish, nuclear power represents in many experts’ opinions the only current viable alternative to fossil fuels going forward. On balance, market consensus opinion is currently cautiously positive in tone.

All yield figures are variable and not guaranteed.

Fundamental Data

* Prior to 31st March 2005, figures were stated under UK Generally Accepted Accounting Principles (GAAP). Recent figures stated under International Financial Reporting Standards (IFRS).