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Point to you! :) Technicals work barring news... so we've had a rocky session today on Ako capital, a long term investor, selling. We haven't broken the uptrend yet established by the lows. But this could weigh on sentiment and there is a news vacuum into the July trading update. LT still a great buy on fundamentals. Short-term, dicier.
Hi Johnny, putting my technicians hat on for a moment. I think we are in some kind of falling wedge on the daily, and weekly charts. Depending on how steep the top line is a bit subjective. But getting to 350-400 zone with in next 1-2 weekly candles doesn’t look crazy.
Hi, on what basis ? we just had 3-4 fundamental issues put to rest. We can always see 'trading pullbacks' but but why the abyss? and why are you worried?
I hope people are paying attention here... stock is up strongly today. next thing to watch out for: brokers revising their ratings. To have a sell on RR right now is lunacy. Their customers are getting bailed (or will do soon). Fixed costs have come down. Liquidity boosted and the balance sheet can handle more debt IF needed (big if). RR is certainly not a 'sell' anymore, and bear minimum a hold. So I suspect at least a few of the sells to convert in time. can't say when this will happen for sure, but we have July trading update to look forward to, where company should hopefully announce some progress on Trent 1000 AOGs.
Absolutely agree, they won’t be needing the Equity injection right now (if ever). It was more of a thought exercise to show the stock is a buy in either scenario. Just saw Lufthansa bailed out as well, a key customer that is adamant on long haul restarts now. Feeling like things are indeed looking up ... interesting week ahead!
Don’t think this will happen now that Project Birch is out there (see my other discussion topic). Forced mergers are generally not in the shareholders best interests for lots of reasons. So, really would depend on transaction multiples, e.g. if BAE did a share swap deal at a high premium, it could be good... but IMHO thinking that might not be the case as they have their own shareholders to appease and this is cycle low. Likely result would be a take under... and then spin out the civil aerospace assets ASAP ... wouldn’t be good for jobs.
Hi everyone, more thoughts posted on Twitter under @thelonebroker, but here is an article link: https://www.fr24news.com/a/2020/05/the-birch-project-plan-to-bail-out-british-businesses-hit.html
The gov’t is looking at injecting equity & further debt into aviation, aerospace and auto sectors. This is massively positive for Rolls Royce which has liquidity to get thru a downturn, but now has a government backstop. Airlines and auto should be the first order for gov’t to save - there is plenty of global precedent for that.
Valuation for RR was super depressed on mid-cycle/normalised numbers (look at the out years) https://www.marketscreener.com/ROLLS-ROYCE-HOLDINGS-PLC-4004084/financials/
So, for those concerned about dilution... even if the company accepts equity injection, these multiples could pop 50-100%. So plenty of play there, and the company doesn’t require equity near-term (or at all)... Even if they took equity, they could buyback shares later given solid FCF.
Therefore, stock should have a pretty positive week (all things being equal and we don’t have some other negative news). Arguably, some of this was getting priced in after the jobs cut announcement but still room to go.
Sadly anon3, that sort of attitude isn't just found at RR, you can find that at most large companies. And probably even moreso when you have a monopolgy/duopoly like RR has. Even the high flying tech companies. Read this:
https://www.vouchercloud.com/resources/office-worker-productivity
Cutting 17% of workforce can light a fire on some people though. Survival mode kicks in. You'd be surprised. Also, there are a lot of positive example of RR culture.
Hi everyone, just so you know.. here are the analysts that write research on Rolls-Royce.. and their track records on calling stocks.
Sandy Morris has ~5years of experience. The JPM anlayst, David Parry looks like started his job last year.
Who do you trust?
Bull: Sandy Morris - Jefferies, 72% success rate - £7 PT
https://www.tipranks.com/analysts/sandy-morris
Bull: Chris Hallam - goldman sachs, 40% success rate - £5.73 PT
https://www.tipranks.com/analysts/chris-hallam
Zafar Kahn - bear on street, 42% success rate - £2.46 PT
https://www.tipranks.com/analysts/zafar-khan
Bear: Oliver Brochet - 25% success rate £2.45 PT
https://www.tipranks.com/analysts/olivier-brochet
Bear: David Perry - 41% success rate - £1.25 PT
https://www.tipranks.com/analysts/david-perry
If we believe the guidance, the Trent 1000 issues will be largely solved with AOGs shifting to single digits by middle of the year. Also hearing that the downtime from COVID is giving them time to focus even more on the issue. That could be news to look forward to in the July trading update?
The company has bought itself valuable time by increasing its liquidity position. The cost savings from the job cuts are more than double what I was estimating. The cost structure in civil aerospace division was bloated to begin evidenced by the low operating profit. This is a positive development for shareholders as the company as increased its operating leverage to a recovery. For the next while, short-term, the sp will be dictated by an inflection air travel, which hopefully will be positive in calendar Q3 and Q4. For sp to go back to £7-8, it could indeed be a 2 year wait (but stranger things have happened.... e.g. if we get a vaccine, it can happen much quicker).
More shares = dilution (think profitability gets split over more slices of the company). I estimate we are a good 9-12 months before that needs to be considered. RR is really a bet on air travel resumption (and whatever drives that). If air travel does not resume, the stock is a bust. If it comes back, the stock can go up 3-5x from here over the medium to long-term. Short-term, its going to be a very bump ride. Prepare for turbulence.
JPM thinks the company will do a rights issue so is pricing in dilution. That was even before the company manged to draw down more on revolver. I think there will be plenty of debt available to RR if they need it thanks to BoE asset purchase program. It wouldn't be smart to do a rights issue.. .that should be a last resort option. For CS, I haven't read the report. Its likely concerns about liquidity too. All of these things can be mitigated by a bounce back in air travel. Airline restarts are happening in June/July. The vaccine development must also be watch for consumer confidence to bounce back.
Thanks Webbs, key excerpt: The global Commercial Aero Turbofan Engine market size is expected to gain market growth in the forecast period of 2020 to 2025, with a CAGR of 3.3% in the forecast period of 2020 to 2025 and will expected to reach USD 31440 million by 2025, from USD 27660 million in 2019.
The RR share price is factoring in a 80-90% reduction of civil business... let alone growth.
Brokers are not always right... plenty of examples to cite. There are concerns about liquidity, but that is well known. And, if air travel recovers (already seeing rebound in passenger volumes off lows), this will become less of a concern. We need to hear publicly from the company on cash burn to be sure how much time they really have. Next trading update is July but we could hear something sooner if job cuts get announced by end of month.
Thanks for being a voice of reason Mick. Agree re: Trent 1000. Still will be a positive when AOGs go to single digits. I would think there is still some risk of failure given how long it’s taken to fix... so when something comes out mid year (as planned), it will be good. Re: a380, at least you have the XWBs taking over.
(Side note: What I have less viability on is future R&D and engines to come. It’s on my todo list to investigate. If anyone has some good places to look? eJets? )
It’s worth mentioning that a smaller industry doesn’t mean less valuable. The civil business at RR was not that profitable compared to power and defense. This right sizing will help to reduce costs and the top line will recover with global growth and demographics.
Very hard to call a stock day by day. My guess is that we follow GE higher. It’s a look a like business and the stock was up 14% today. It’s more leveraged though which may be the reason. Let see! I like the stock for the long-term.
I don't have a link to the report, but here the reference to recent target.
https://www.sharesmagazine.co.uk/news/market/6887925/Broker-Forecast-Goldman-Sachs-issues-a-broker-note-on-Rolls-Royce-Group-PLC
If you want something like research , check out what casuseway capital wrote - they bought £300m of RR stock at around these levels (reported on May 4, 2020)
https://www.causewaycap.com/insight/prepared-for-takeoff-aviation-and-aerospace/
They manage $37B and are value focused. They would have a dedicated team focused on researching this investment. They can be wrong just any of us, but I think their approach is quite sensible.
The airlines will always favour playing Boeing off against Airbus, and for longhaul the same goes for RR vs. GE. Look up Porters 5 forces. Its in the interest of airlines to foster at least 2 alternatives otherwise they have no bargaining power. Things like credibility, insurance, safety matter. I also think Rolls handling of the Trent 1000 has shown they can pay up if needed (kind of like insurance)... while annoying for the airline, they have staying power.
The JPM price target is utter bulls**t. At least based on my 15 years experience in investment banking and my own model. Jefferies has a £7 price target, and I think they are actually doing more substantive work. Goldman has a £5.73 target. JPM are pricing in bankruptcy which is a very low likelihood of happening. There is more behind the scenes going on there I suspect. JPM probably not winning advisory business from RR etc.