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Will the Rolls-Royce share price sink below 100p in 2023?
Charlie Carman
Wed, 8 February 2023 at 3:30 pm GMT·3-min read
In this article:
RLLCF
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Young female analyst working at her desk in the office
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The Rolls-Royce (LSE: RR.) share price has staged an impressive rebound over the past few months, skyrocketing 64% from its October low.
With a big overhaul planned by new CEO Tufan Erginbilgic, can the rally continue or will the FTSE 100 aerospace and defence company fall back into penny stock territory?
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Here’s my take on the outlook for the business.
Big challenges ahead
Erginbilgic has not shied away from confronting the difficulties facing Rolls-Royce. In a global address to staff, the former BP executive described the company as a “burning platform“. He was damning in his criticism of the situation the firm presently finds itself in.
Every investment we make, we destroy value…we underperform every key competitor out there.
Tufan Erginbilgic, 27 January 2023
Although it’s arguably less of a pressing challenge than it was previously, Rolls-Royce still has a £4bn drawn debt mountain. Further efficiency savings and potential job cuts are on the cards to instil investor confidence.
In this respect, I think the company’s headed in the right direction. However, it’s a long and difficult road to repair the balance sheet. Any signs that Rolls-Royce is struggling to get its debt under control could send the share price tumbling below 100p this year.
Furthermore, according to former CEO Warren East, a recent successful test run of an aircraft on hydrogen, conducted in partnership with easyJet, may not be a silver bullet to the company’s troubles.
East has cautioned that technological efforts in this space are not advanced. There’s a risk that investors could be too optimistic on the effect this could have on Rolls-Royce shares.
Reasons to be cheerful
Despite the challenges, I think it’s easy to read too much into Erginbilgic’s comments. There’s an incentive to make his mark as the group’s new leader and remove any room for complacency among his employees.
Indeed, there are tailwinds that could lift the share price higher. For example, civil aviation demand continues to recover. China’s relaxation of its ‘zero Covid’ policies bodes well for the sector, which accounts for 41% of Rolls’ underlying revenue.
In addition, the company secured 7% of the total R&D investment made by the UK government last year. The state’s innovation agency has handed Rolls-Royce a total of £689m over the past two decades. Remarkably, that’s over four times the amount received by any other firm.
Couple the public investment with the company’s central role in delivering small modular reactors to m
Guys
Its really frustrating that some of the posts are meant only to criticise someone, rather than sharing anything positive or negative which can effect the share price either in Short term or LT. We are all supposed to be investors in RR who have no personal connections with each other and neither should be the intent to harm or disrespect anyone. If you have any information that can help others please share it but do not get personal. After all we are all here to make money not friends or enemies
Please show respect to be respected
Big has been beautiful in the nuclear industry. For decades, the size of nuclear reactors has steadily increased, with each new plant able to generate ever greater amounts of electricity.
Britain’s first commercial reactor, at Calder Hall in Cumbria, was capable of generating 50 megawatts in the 1950s; Sizewell B, the power plant in Suffolk on England’s east coast that started operating in 1995, currently generates 1,200MW or 1.2 gigawatt.
But the future may be much smaller. Dozens of companies are working on a new generation of reactors that, they promise, can deliver nuclear power with less cost and risk. These smaller plants will, on average, generate between 50MW and 300MW of power, compared with the 1,000MW-plus from a conventional reactor. They will also draw on modular manufacturing techniques that reduce the construction risks encountered with larger reactors.
And nuclear power is now firmly back on the agenda, amid new fears for energy security following Russia’s invasion of Ukraine and the ever-greater need to reduce global carbon emissions.
In Germany, chancellor Olaf Scholz decreed in October that all three of the country’s remaining nuclear plants would continue operating until mid-April 2023. The country had been due to shut down the plants by December 31, under plans drawn up by then-chancellor Angela Merkel following Japan’s Fukushima nuclear disaster of 2011. France, meanwhile, is considering ambitious plans to build new reactors.
However, with large reactor projects still facing financial and construction problems — in the UK, the new 3.2GW Hinkley Point C plant in Somerset has been hit by delays and cost overruns — analysts believe the time may be right for small modular reactors (SMRs).
Beyond the provision of baseload electricity, SMRs can be used to produce green hydrogen or a combination of heat and power in remote locations. They can also be used to power large industrial sites or data centres.
One of their biggest selling points is that they can be largely factory-built, in modules. “It tries to avoid a bunch of the problems associated with large nuclear,” explains Philip Meier, partner at LEK Consulting. “The flat-pack [approach] gives you predictability, [with] construction on site, which reduces the financing costs. You should also be able to march down the learning curve as they will be largely pre-designed.”
Small modular reactors could also prove affordable to nations unable to fund large nuclear. Their smaller size means that there is “less demand for space and for cooling water”, says Vince Zabielski, partner in the nuclear energy practice at law firm Pillsbury Winthrop Shaw Pittman. They also involve “smaller emergency planning zones compared to large traditional reactors, meaning there are far more suitable building sites for SMRs”.
Government support for SMRs — most of which will not be commercial until the mid-2030s — has increased substantially in the past two years, running wel
https://www.fool.co.uk/2022/09/11/forget-saving-im-buying-rolls-royce-shares-to-build-wealth/
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I have previously had experience with British Gas. Centrica was created as new company and new British gas and Centrica shares were issued. British Gas price was adjusted accordingly and there was no real gain in immediate aftermath but shares progressed well in both companies and almost trippled