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My opinion in your situation Liam is to take the rights issue if you are in this for longer term. The reason being is because you invested at £2.65 when the market cap was ca. £4bn +, not a bad entry in my opinion. If you hold and don't take the RI, you are heavily diluting yourself.
Your best trade (but riskiest) is to sell now and buy back in before the RI, when the price may drop down to 60 pence in the lowest case. It is risky as of course for some reason the share price may increase between now and the RI (although unlikely).
Hope this helps at least provide a point of view for you.
ATB
Seeing some confusion whether you should stay invested and take up RI or come out now. Here are some thoughts which may help:
Am I right in thinking due to the future dilution at 32p (10 for 3 shares), the current price after the dilution would equate to a GBP 9.5 billion market cap. (***please correct me if I am wrong***).
Therefore I believe shareholder value (diluted or not) will come down from the current value by at least 50%. In this case it would be worth buying in at a price of 58pence non-diluted price, or a price of 15pence post dilution.
DYOR! Hope this helps frame some thinking in any case.
All the best.
Could this be the time that BAE Systems "merge" with RR? If RR are struggling to sell ITP Aero and the RI can't cover the shortfall, this may be a forced option.
*disclaimer* I have swapped my previous holding of RR now into BAE.
Hi all,
A few thoughts from me re. the latest chat:
1. the £8 m sell "UT Trade" - ultimately this is likely to be the same broker / asset manager transferring assets from one client to another. This is an outlier.
2. The drop in sp on Friday is correlated with the general sentiment that coronavirus is here and second wave is happening / is inevitable globally. Hence, the FTSE across the board mainly dropped.
3. The placing is probably likely. So much so, that this is already priced in largely. I can't see this being the reason why the SP will drop further (significantly).
4. The SP will drop further based on more negative news re. coronavirus and continued / extended disruptions to long haul travel.
5. Conversely, the SP will go up based on any positive news to the above.
Yes, this could drop further, but the placing is now well and truly priced in (the effect of a dilution). What isn't priced in is significant worsening of long haul travel. Let's see how it plays! I wouldn't panic sell on Monday unless you think the risks are simply too high and long haul travel won't recover by 2021.
All the best!
Thanks for the link. Interesting to see. FYI: there are only 2 current short sellers. Of which it is important to show both sides of the coin: DSAM closed close to 0.5% short position on June 30th. i.e. when the price reached to what I assume was their target low price of 285.
One other point here to consider - if engines start running globally asap, the benefit is potentially more than one might think. They recover revenues immediately - on the profitable side of their civil aerospace engine business. In fact, the engine sales for the next few years or more will be down... this is no bad thing at all. They sell the engines at a loss. Airlines will simply keep their engines longer, better for Rolls, simply because they need to keep their maintenance contracts going. The more life an engine gets , i.e. airlines don't replace their engines, the better for RR. They have laid off staff around engine construction. It is weighted towards engine maintenance. The good way round. For RR shareholders, if engines start running now... this is just perfect scenario. Any thoughts on this is appreciated. All the best!
They are burning through 1bn a month with international travel restrictions in place. The engines aren't running! Travel opens up, RR are fine. Travel remains closed for 3 months. Not good. That's the risk you have to weigh up!
Absolutely Deelaar. Put this into perspective , the initial worries that they would need to do an imminent cash raise was a worry. They absolutely do not need to now. This company will be generating 750m free cash in 2 years time, and the growth will be phenomenal after this. It has guaranteed revenues from engine servicing once everything ramps up again. Risk now is COVID travel restrictions get put on again globally, that’s dampening the price now. That would be catastrophic. However, if everything goes to plan with engine hours going back up over next 3 months, wow... it will fly. So... keep any eye on number 1 risk: international travel opening up.
Hi all, I'm not sure it's a leak, with the update out in the morning big players will be simply de-risking their holdings (especially since it has gone up 15% or so in past week), they will be back in once all the new information is to hand. All best!
Link didn't seem to work:
https://www.rolls-royce.com/media/our-stories/discover/2020/poweroftrent-providing-power-in-a-pandemic.aspx
https://www.marketscreener.com/ROLLS-ROYCE-4004084/news/Rolls-Royce-Providing-power-in-a-pandemic-30415983/
Very strong point re. Cargo planes being in the commercial engine segment. In fact RR wrote their own news story on their website a few days ago, addressing this: "Providing power in a pandemic" (story link below).
I wonder what % of flying hours cargo is of total commercial engine hours? Does anyone have an idea? There will have been no reduction (or even an increase) in cargo engine hours.
https://www.rolls-royce.com/media/our-stories/discover/2020/poweroftrent-providing-power-in-a-pandemic.aspx
Hi all, yes I find it hard to agree with "balance sheet is strong" in terms of its relevance to being able to keep burning through cash during COVID travel restrictions. The "7 billion of liquidity" is needed to keep the rest of the businesses going, it is NOT available to plug the gap in loss of revenues from engine servicing. The cash burn here is so significant, that they will need potentially as much cash as their current market cap to be considered well capitalised. That means heavy dilution on a fundraise, because RR is valued far too low on future potential. Unfortunately, investors are pricing RR as if it doesn't have any IP! The R&D alone and future potential from new products is enough to be worth 10X its current market cap in my opinion. If the CEO was Elon Musk, and the investor base valued RR in the same way Tesla's investor base do, RR would be valued much higher than a measly 5bn, and therefore a 2bn + fund raise would be a small dilution. RR is not considered a growth stock and is just an established business, and is currently priced in as a business that is to go bankrupt. Unfortunately, that is not ideal for those investors who believe in the long term prospects of RR, like me. Unfortunately there will be a significant dilution, the more this plummets before the issue, the worse it will be. There will be an unbelievably good entry point for new investors. I do not know when. For me I will be de-risking my holding here, and come back in when there is more certainty. Personal reasoning, will stay in long term, but de-risking short term. All the best!
* I add to my analysis. High level thoughts are 4bn is needed to weather this storm (i.e. into next year). To do that? : 1 billion current assets headroom PLUS 800 mn cut in annual costs from layoffs PLUS 200 mn from government support PLUS maybe 1 billion revenues from regional engines etc. MINUS loss in engine sales (airlines not buying) of 1 billion. That leaves 2 billion needed to weather the storm. To do that via a sale of asset or equity raise. Can't see any other way around it. This of course is very high level and interested if this is way off the mark. All best!
Hi all, am new here. I felt I needed to pipe in as tedmak has looked into the balance sheet and this point is absolutely KEY. I can only agree here. With 1bn in net current assets, with lost revenue from the engine servicing business of at at least 25% of an annual ca. 4bn, i.e. 1bn lost revenues minimum, with little reduction in costs. Looks close to the wire without raising more cash? Please if anyone can disagree with this analysis, that would be great. (I am in at avg 320).