Rolls-Royce Holdings PLC

Rolls-Royce Holdings PLC (LON: RR) is a London, United Kingdom-headquartered multinational engineering company with a focus on power and propulsion systems.

On 4^th August 2020, the company will release its half-year results.

Recent News
On 28^th February 2020, the company announced the appointment of Non-Executive Director - Dame Angela Strank.

Decent end to the year 2019 & delivered a strong free cash flow

(Source: Full Year Results, Company Website)

Group’s underlying revenues for the financial year 2019 rose by 7% to £15,450 million, mainly due to growth in Civil Aerospace, offsetting a decline in non-core revenue. Revenue from the underlying core surged by 6% to £15,261 million in 2019, representing growth in both OE and services, led by Power Systems and Civil Aerospace. While the reported revenue increased by 5% to £16,587 million in 2019. Both Group and core underlying operating profit increased 25 per cent to GBP 808 million and GBP 810 million respectively due to organic improvement in Civil Aerospace division. Free cash flow of the Group increased to GBP 873 million in FY2019 versus GBP 568 million in FY2018 while Free cash flow of the core increased to GBP 911 million in FY2019 versus GBP 648 million in FY2018. In FY19, the net cash increased by £521 million to £1,361 million.

Share Price Performance

Daily Chart as at March-09-20, before the market closed (Source: Thomson Reuters)

Rolls-Royce Holdings PLC shares were trading at GBX 553.80 before the market close (at 8:42 AM GMT) on 9^th March 2020 and were down by 5.84% versus the previous day closing price. Stock 52 weeks High and Low are GBX 939.61/GBX 552.00.

Valuation Methodology

*Peers: Meggitt PLC, Senior PCL, Easyjet PLC, and BAE System PLC.

Growth Catalyst

(Source: Presentation, Company Website)

The company has generated a strong core free cash flow (FCF) of £911 million. A further step towards the ambition to deliver £1 cash per share in the mid-term. CROIC stable at 12% despite ongoing high level of R&D investment. The underlying revenue for 2020 will be stable to low single-digit growth. In 2020, the operating profit growth of around 15% and core FCF at lease £1 billion.

Conclusion
After a challenging H1 FY19 period, the company had delivered a growth of 25% in 2019 underlying operating profit and an improvement in free cash flow.With £269 million of run-rate cost savings, the restructuring efforts gained momentum. Civil Aerospace division enhanced its underlying profit substantially, with good aftermarket performance, increased OE unit losses, and record engine deliveries. Further, Rolls-Royce made significant progress on Trent 1000 fixes. By the end of the second quarter of 2020, the group stay on target to decrease aircraft on the ground to single digits. Guidance excludes any material impact from COVID-19 in 2020.

RR took vital steps towards becoming a spearhead in low carbon technologies andcontinued to invest significantly in research & development. Increased the electrical capabilities with a majority stake in Qinous and the acquisitions of Siemens’ eAircraft business. The group is also evolving new in-house hybrid-electric solutions.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “BUY” recommendation at the current price of GBX 553.20 (as on 9th March 2020, before the market close at 8:35 AM GMT) with lower double-digit upside potential based 7x NTM Price/Cash Flow (approx.) on FY20E cash flow per share (approx.).

Polymetal International PLC

Polymetal International Plc (LON: POLY) is a Cyprus-based leading gold and silver producer with a high-quality, low-cost asset base, and operations in Kazakhstan and Russia.

On 18^th March 2020, the company will release its Annual Report 2019.

Recent News
On 4^th March 2020,the company announced that the Board had proposed the payment of a final dividend per share of US$ 0.42 for the financial year 2019. 

Unfavourable market backdrop for the year ended 31^st December 2019

(Source: Preliminary Results, Company Website)

For the year ended 31^st December 2019, the revenue surged by 19% to US$2,246 million(2018: US$1,882 million). On a year-on-year basis, the gold sales surged by 14%, and the silver sales decreased by 14%. For the full year 2019, the Group’s total cash costs (TCC) stood at US$ 655/GE oz and remained almost the same compared to 2019. The adjusted EBITDA margin for 2019 was stated at 48%. Net earnings were reported at US$ 483 million in 2019 (2018: US$ 355 million), with basic earnings per share of US$ 1.02 (2018: US$ 0.78). In FY19, the capital expenditure rose by 27% to US$ 436 million against the US$344 in 2018. On 31^st December 2019, the net debt reduced to US$ 1,479 million (December 31, 2018: US$ 1,520 million), reflecting a 1.38x of Net debt to Adjusted EBITDA ratio in 2019 (2018: 1.95x), well below the company’s target leverage ratio of 1.5x.

Share Price Performance

Daily Chart as at March-09-20, before the market closed (Source: Thomson Reuters)

Polymetal International Plc shares were trading at GBX 1,246.6 before the market close (at 8:50 AM GMT) on 9th March 2020 and were down by 3.96% versus the previous day closing price. Stock 52 weeks High and Low are GBX 1,393 /GBX 763.71. 

Valuation Methodology

*Peers: Kaz Minerals PLC, Fresnillo PLC, Resolute Mining Ltd, China Nonferrous Gold Ltd, and Goldplat PLC.

*Currency exchange rate taken for 1 USD = 0.764311 GBP.

Key Risks
Market risk, Production risk, Construction and development risk, Tax risk, Exploration risk, Health and safety risk, Environmental risk, Legal risk, Political risk, Currency risk, Liquidity risk, and Interest rate risk.

Conclusion
The Group reiterates its existing production guidance of 1.6 Moz of GE for year 2020 and 2021. In both years, the production will be weighted towards the second half due to seasonality. In 2020, the TCC is anticipated between US$ 650/GE oz and 700/GE oz, while AISC will be in the range of US$ 850-900/GE oz.

The risk to operations is also due to the complex relation Russia currently has with the United States and European Union. Due to the strengthening of the US Dollar, the company had to face a negative impact on its earnings. For 2020, the company maintains a positive outlook, both in terms of free cash flow and earnings. Moreover, the company is trading near 52-week high, raising doubts at its upside potential at current prices.

Based on the above rationale, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 1,298 (as on 6^th March 2020), while we look for any upcoming catalysts. 
 
*All forecasted figures and peer information have been taken from the Thomson Reuters.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.