Positive long term outlook1 Oct 2020 20:58
Having worked with RR, I have a good feel for the business. The current situation is dire for both the company and us weather beaten shareholders. However, I do see the potential upsides as a long term investor. Please see my brain dump below and feel free to comment.
Total Shares after RI = £8.376B
Current Mcap + RI Capital Raised
(2.26 + 2) = £4.26B Mcap
Therefore share price should trade @ £0.5 post RI (4.26/8.376) with Mcap of £4.26B albeit I think this will go a bit lower.
The average Mcap over the past 5 years for RR is approx £16B at the lower end.
Pre covid the share price had already taken a hammering with the existing and newly announced Trent 1000 IP turbine issues (which can be fixed), the share price was £6.50 with Mcap of £12.5B.
So, the question I ask myself is - in 2-3 years after Covid is a distant memory, can I see the Mcap climbing back to that pessimistic value of £12.5B which had already been beaten down? ... and the answer to that is ....YES!! The current valuation is crazy considering the Defence and Power Systems segments of the business. Even within commercial aerospace and the future innovations including the geared Ultrafan technology and R&D into electric propulsion/supersonic travel, I firmly believe that there are many growth vectors ahead.
Now as a sidenote, with the reduction in headcount and the consolidation of the Repair and overhaul sites reducing costs further RR will be a leaner business moving forward generating much higher FCF which will allow the dividend to be reinstated (in time) driving the SP up higher.
When I take out the RI offering with an average cost of £0.75 I am confident that RR will return to a minimum Mcap of £12B within 2 to 3 years, which equates to ~2X return
Break Even Mcap = 8.3B (shares)*0.75 = 6.27B
(Minimum target Mcap/B.E Mcap)
12 / 6.27 = 1.98X Returns
Using the same method above, any new investors picking up shares around the £0.5 mark can 3X their investment.
C'mon the rolly polly!