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

Recent News
On 28th February 2020, the company announced the appointment of Non-Executive Director - Dame Angela Strank.
Financial Highlights – Financial year 2019

 
(Source: Preliminary Report, 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 on 26^thMarch 2020, before the market closed (Source: Thomson Reuters)

On March 26, 2020, at the time of writing (before the market close, at 9:01 AM GMT), Rolls-Royce Holdings Plc were trading at GBX 402.10, up by 1.24 per cent against the previous day closing price. Stock’s 52 weeks High and Low are GBX 939.61/GBX 300. 

Valuation Methodology

*Peers: Cohort Plc, Chemring Group Plc, Qinetiq Group Plc, Abb Ltd and Boeing Co

Conclusion
After a challenging H1 FY19 period, the company has 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 and continued 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. 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.

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 380 (as on 26th March 2020, before the market close at 8:02 AM GMT) with lower double-digit upside potential based 17.87x NTM P/E (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and information have been taken from 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.