INTERNATIONAL NUCLEAR SOLUTIONS (INS)

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These companies are all previous recommendations from the Red Hot Portfolio that I have subsequently recommended and then sold from the portfolio at a later date. By no means are these companies intended to be buy recommendations for you to go out and invest money towards their shares. For the opportunity to start making serious money from the recommendations I am making now, just start your no obligation trial!

INTERNATIONAL NUCLEAR SOLUTIONS (INS): Time to sell - July 2007

RHPS Recommendation - SELL

Babcock has the acceptance of 43.3% of shareholders for its renewed 63p offer. However, some shareholders seem intent to block this deal, in which case the share price would probably fall back.

INTERNATIONAL NUCLEAR Solutions (INS): Shareholders Dissent - Jun 2007

A group of major shareholders are refusing to vote in favour of Babcock's 63p takeover bid, in spite of the recommendation of INS's board. With over 25% of the share capital they have blocked the deal and caused INS to cancel the meeting that had been called to authorise it. The dissenting shareholders may be won over if Babcock raises its offer - any increase would be to the benefit of all shareholders. On the other hand, it is possible that Babcock might walk away, in which case the share price would fall back. Babcock and INS will now talk to the dissenting shareholders to see if a compromise can be reached. In my view, INS would be an attractive investment in its own right, so despite some risk if the deal falls through I am happy to hold on and see what happens.

RHPS Recommendation - HOLD

INTERNATIONAL NUCLEAR SOLUTIONS (INS): 38% Increase in Orders - Apr 2007

RHPS Recommendation - HOLD

INS has announced 29% growth of turnover in 2006, and a 38% increase in its order book. However it refers to a shortage of skilled labour with nuclear engineering specialists in high demand. International Nuclear Solutions is still in discussions with Babcock International about a possible takeover offer that would be in cash at a price of at least 63p.

INTERNATIONAL NUCLEAR SOLUTIONS (INS): Babcock Bid? - Feb 2007

RHPS Recommendation - HOLD

Babcock International has bought 24.5% of INS's share capital, paying 63p per share. It is now likely to launch a bid for the remaining 75.5% at a small premium to 63p. If you own the shares hold on for further developments.

Your way into the booming nuclear power industry: Snap up this AIM beauty NOW for a cool 61% within the year - Dec 2006

RHPS Recommendation - BUY

In case you do not KNOW what KNOO stands for, the answer is "Keep the Nuclear Option Open", which is the Government's non-committal way of saying that nuclear power is right back on the agenda.

And that could mean a bonanza for a small company that made its debut on AIM in May, but has in fact been around for 25 years. The company is called International Nuclear Solutions (INS), and until this year it was a division of another quoted company called Robotic Technology Systems.

Pressing the nuclear button

INS offers a unique way to take advantage of the forthcoming boom in the nuclear power industry. And what I like about it is that it does not require our prevaricating political masters to press the nuclear button, to approve the building of new power stations. And it will have its hands full dealing with the forthcoming programme of decommissioning.

INS is an engineering consultancy that specialises in the nuclear industry. It designs, delivers and supports operating facilities associated with fuel fabrication, spent fuel reprocessing, and the handling of waste and nuclear materials. It provides engineering services for the care and maintenance of plant, for decommissioning, for the supply of special purpose equipment and for the building of new facilities. It has around 300 engineers, offices in the north of England, which include one at Sellafield, and an all-important excellent safety record.

But to get an idea of INS' prospects, a brief history lesson...

On the orders of the then Prime Minister Winston Churchill, Calder Hall was built in Cumbria, and opened by the Queen in October 1956. Its primary function was to manufacture plutonium for the nuclear weapons programme, but it was also the first nuclear reactor anywhere in the world to generate commercial electricity. It has been described as "a very tidy old ship, internally quite magnificent, with brass fittings and dials, all set in a Dan Dare future."

The Calder Hall nuclear power plant sits within the Sellafield complex in Cumbria, and generated electricity for 47 years before it was closed down in 2003. Calder Hall was a "magnox" power station, the name coming from the material used to clad the fuel rods inside the reactor. A further 10 magnox power stations were built before, in the 1960s, this type of power station was succeeded by advanced gas-cooled reactors. Seven power stations of this type were built, before they too were superseded, this time by pressurised water reactors which are typically used in the USA and the rest of the world. In total the UK now has 20 nuclear power plants at 16 sites, and these produce about 20% of the UK's electricity.
Cost - a staggering £72bn

Nuclear power plants have a lifespan of about 40-60 years, so those built in the 1950s and 60s are now coming to the end of their lives. In fact seven have already been closed, and all but Sizewell B will be closed by 2025. One of the main economic factors held against nuclear power, has always been the cost of 'decommissioning' - in other words closing them down and dealing with the radioactive material. And we are about to pick up the bill, which according to the latest estimate of the Nuclear Decommissioning Authority (NDA), is about £72bn! This is an absolutely massive amount. But whatever the cost the work must be done, and any company which can assist in the process can expect to be kept busy for many years.

70% increase in order book

So it is no wonder that INS' chairman, Chris Brown has described the outlook for the industry as "very positive" or to learn that INS recorded a 70% increase in its order book in the 12 months to 30 June. Typically INS will be involved as a sub-contractor to the Tier Site 1 licence management companies and major construction companies. Since June it has won an £18m contract with Carillion, a £1m design commission from Nuttall for a waste storage facility at Sellafield, and it has signed a framework agreement with British Nuclear Group for a Mixed Oxide Fuel Production Facility at Sellafield. This is enough to cover all of this year's workload, and half of next year's, but with about £50m of outstanding tenders the order book seems certain to grow further. In anticipation of growth, INS is recruiting new staff and has opened a new office in Warrington. But, apart from finding suitably qualified staff in what is a very competitive market for engineering skills, INS' main problem may simply be coping with growth, and seizing the best opportunities. At present INS only operates on four sites, all under the ownership of the Nuclear Decommissioning Agency. It is not operating at any of the eight modern nuclear sites which were transferred into the hands of British Energy in 1996. This is one possible avenue of growth, while there are other opportunities overseas and with the Ministry of Defence.

But the NDA has now put in place the tendering process for decommissioning of all the sites for which it is responsible, and plans to have handed out all the contracts by 2012. As a tier 2 supplier, INS can expect to pick up a good share of work and in order to offer a fuller range of capabilities it has long term relationships with other engineering service suppliers, an example being its leadership of the Deltec Alliance.

This alliance which linked INS with Morson Projects, Capula and DGP International was formed in 2003 to provide multi-discipline engineering services to British Nuclear Group. Now, following a re-tender of this work, INS is one of three executive members of the Accord Alliance that has been awarded a contract to provide continued engineering services from March 2007. Neat business with plenty of cash INS is essentially a 'people business,' and although September's interim statement did allude to some salary inflation, the financial characteristics of the business are attractive. Via the Nuclear Decommissioning Agency, its ultimate customer is the government, so bad debts are not an issue. It has little requirement for capital investment beyond its office facilities and IT system, so the majority of operating profit ends up as cash in the bank.

INS made a pre-tax profit of £2.25m in 2005, and after various costs associated with its new status as an independent public company is expected to make £2.3m this year, with growth of about 15% anticipated for 2007 and 2008. Cash is expected to build from £0.8m at the end of this year to £4.2m by the end of 2008, giving INS the opportunity to pay dividends, or else finance its expansion perhaps through acquisition.

RHPS Verdict: The decommissioning of the UK's nuclear power stations assures growing demand for the services that International Nuclear Solutions can offer. This, and the attractive financial characteristics of the business model, make the rating of the shares look very reasonable. And if the Government decides to go ahead and build a new generation of nuclear power plants, then INS will have the problem that every company wishes it had, only in much greater dimension - how to cash in on a massive growth opportunity. A Red Hot buy, with a 12 month target of 70p.

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