Director dealings are essentially insider transactions for shares between directors and the companies they work for. These dealings are always made public, and are often considered a good indicator of a company’s future prospects. However, they don’t get nearly as much attention as other company news due to their complex nature. Nonetheless, here I’m breaking down this week’s biggest director dealings from three FTSE firms.

Rolls-Royce

Rolls-Royce (LSE: RR) is a British multinational aerospace and defence holdings company. It is one of the world’s largest makers of aircraft engines, and operates in four different segments. These include civil aerospace, power systems, defence, and new markets.

After a disappointing set of H1 results, Rolls-Royce shares saw yet another decline. But this week, a number of director dealings were carried out. Most notably, there was a huge purchase of shares from Chairwoman Anita Frew. The purchase from such a senior director should improve sentiment surrounding the stock.

• Name: Anita Frew
• Position of director: Chairwoman
• Nature of transaction: Purchase of shares
• Date of transaction: 5 August 2022
• Amount bought: 50,000 @ £0.83
• Total value: £41,300

• Name: Lee Hsien Yang
• Position of director: Non-Executive Director
• Nature of transaction: Share purchase plan
• Date of transaction: 8 August 2022
• Amount bought: 1,161 @ £0.84
• Total value: £980.23

• Name: Wendy Mars
• Position of director: Non-Executive Director
• Nature of transaction: Share purchase plan
• Date of transaction: 8 August 2022
• Amount bought: 2,156 @ £0.84
• Total value: £1,820.31

• Name: Sarah Armstrong
• Position of director: Chief People Officer
• Nature of transaction: Share purchase plan
• Date of transaction: 9 August 2022
• Amount bought: 175 @ £0.86
• Total value: £149.84

• Name: Rob Watson
• Position of director: President (Rolls-Royce Electrical)
• Nature of transaction: Share purchase plan
• Date of transaction: 9 August 2022
• Amount bought: 175 @ £0.86
• Total value: £149.84

Admiral

Admiral (LSE: ADM) is a British-based insurance company. It specialises in car insurance products, but also has a line of other offerings. These include home insurance, travel insurance, pet insurance, and van insurance.

The FTSE 100 firm released its H1 results earlier this week. Although profits slumped by almost half, the stock still shot up by 15% this week. This was most likely due to the announced special dividend of 15.8p. This would bring its total dividend to 60.0p per share. Investor sentiment was also further boosted when the Chairwoman purchased shares worth over £25,000.

• Name: Annette Court
• Position of director: Chairwoman
• Nature of transaction: Share purchase plan
• Date of transaction: 11 August 2022
• Amount bought: 1,181 @ £22.44
• Total value: £26,501.64

Dunelm

Dunelm (LSE: DNLM) is one of Britain’s biggest home furnishings retailers with an ever-growing market share. It operates over a 170 stores throughout the UK and offers over 50,000 products across a broad range of categories.

The FTSE 250 firm released its Q4 trading update not too long ago, and the interim numbers resonated well with investors. Nevertheless, its bottom line figure is yet to be released, and investors are wondering whether their expectations will be met. Therefore, the recent purchases by its CFO and another director could be an indicator of an earnings beat. The company is expected to report its official FY22 results in less than a month’s time.

• Name: Vijay Talwar
• Position of director: Non-Executive Director
• Nature of transaction: Purchase of shares
• Date of transaction: 4 August 2022
• Amount bought: 9,670 @ £8.50
• Total value: £82,156.32

• Name: Karen Witts
• Position of director: Chief Financial Officer
• Nature of transaction: Purchase of shares
• Date of transaction: 5 August 2022
• Amount bought: 1,174 @ £8.45
• Total value: £9,922.18

Types of shares

To provide context, there are a few types of shares that can be purchased by directors. Some directors opt to purchase shares via the open market. Having said that, directors also have the option to purchase shares via a share incentive plan (SIP).

A SIP is an employee plan for companies within the UK to flexibly award shares to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this week’s set of director dealings, a certain number of directors opted to purchase shares via their companies’ share purchase plans. This allows employees to purchase shares through automatic deductions from their pay. And this was the case with a number of Rolls-Royce directors, as well as Admiral’s Chairwoman.

The post Director dealings: Rolls-Royce, Admiral, Dunelm appeared first on The Twelfth Magpie.

More reading

• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• Here’s how much I think Rolls-Royce shares will be worth by the end of 2027
• Could small modular reactors take Rolls-Royce shares to the next level?
• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
• The SpaceX frenzy is over – is it time to look at Rolls-Royce shares again?

John Choong has positions in Dunelm Group. The Motley Fool UK has recommended Admiral Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Rolls-Royce (LSE: RR) stock has lost a sizeable chunk of its value since the start of the year. Nonetheless, the share price staged a 9% recovery last month. As air travel continues to ramp up, Rolls-Royce shares could be worth a buy this August.

Wind’s blowing in the right direction

The FTSE 100 firm is set to report its half-year results in a couple of days (4th August 2022). So, this could be a buying opportunity for me, before the stock potentially rallies. Analysts in the UK don’t always publish earnings estimates for quarterly or half-year periods. But the upcoming H1 earnings can serve as an indicator as to whether guidance laid out by management for the year can be achieved by the year end.

Given that Rolls-Royce earns a substantial amount of its revenue from servicing commercial aircraft engines, the return of global air travel towards pre-pandemic levels should do its top line an abundance of good. This has also been evident with the engine supplier tying up a number of TotalCare deals with airlines in July.

Additionally, the UK government is expecting to increase its defence budget to 3% of total GDP by 2030. The current budget sits at 2.25%. If this were to happen, Rolls-Royce could stand to benefit from a further stream of government contracts.

A valuable asset

Rolls-Royce also recently announced the successor to its current CEO, in Tufan Erginbilgic, who will be taking over in January. The appointment is a bit of a head-scratcher though, considering Erginbilgic’s lack of experience in the aerospace and defence field. He spent 20 years at BP, and served as its CEO for over five years.

Nevertheless, Erginbilgic is known for his creation of “significant value“. During his tenure at BP, he managed to quadruple profits, while holding a strong track record of execution and delivery. With plenty of exciting and unproven projects in the pipeline for Rolls-Royce, I’ll be hoping that he can help to deliver these new ventures. He will also have an incentive to improve the manufacturer’s profitability, as 30% of his £1.25m salary will be paid in Rolls-Royce shares. As such, I’m eager to see how he plans to navigate the company out of its mountain of debt.

Rolling in cash?

Speaking of debt, Rolls-Royce has a ton of it. That being said, if it manages to achieve positive free cash flow (FCF) by the end of the year, the British-based company may be well equipped to start paying off its debt in 2024. This would then give it the dry powder to fund its future projects.

Taking everything into consideration, should I buy Rolls-Royce shares in August then? Well, it’s got plenty of exciting developments, and everything seems to be pointing in the right direction for the time being. This would normally entice me into investing. However, its financial position does leave me worried, as its earnings potential could be hindered by its debt repayments.

So, while I’m feeling rather upbeat about Rolls-Royce’s long-term future, I think there’s a possibility that its revenue and FCF could come in below expectations in H1 due to a slower than expected recovery in flying hours. For that reason, I’ll be putting Rolls-Royce on my watchlist for now.

The post Are Rolls-Royce shares worth a buy in August? appeared first on The Twelfth Magpie.

More reading

• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• Here’s how much I think Rolls-Royce shares will be worth by the end of 2027
• Could small modular reactors take Rolls-Royce shares to the next level?
• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
• The SpaceX frenzy is over – is it time to look at Rolls-Royce shares again?

John Choong has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Rolls-Royce (LSE: RR) is most renowned for its civil aerospace division. However, its other businesses in defence and power systems also hold plenty of potential. With the company disclosing a flurry of new deals, partnerships, and innovations this week, I think Rolls-Royce shares are worth a closer look.

Innovations taking off

As defence spending ramps up worldwide in light of the Russia-Ukraine war, Rolls-Royce stands to be a beneficiary. The FTSE 100 firm unveiled a new Orpheus engine this week for its defence segment. The radical new engine can be used for low-cost, unmanned, small engine applications. Furthermore, its agile approach allows it to be built in half the time of a normal engine. This changes the way products and technologies are developed for the UK’s Future Combat Air Strategy (FCAS), and will help deliver the capabilities to fight and win in most hostile environments.

Additionally, Rolls-Royce announced a collaboration with the likes of the Royal Air Force, UK government, and Reaction Engines to develop hypersonic technologies. This is thought to be groundbreaking as the UK lags behind the likes of China, Russia, and the US in that space.

Nonetheless, the most exciting development for me this week was the announcement of the H2ZERO partnership with easyJet. The purpose of the programme is to pioneer the development of hydrogen combustion engines for aircraft by the mid-2030s. If successful, this could be revolutionary and do the Rolls-Royce share price wonders, as it’ll have first mover advantage in the hydrogen fuel space.

Cutting edge technology

The exciting developments don’t just end there though. The manufacturer announced that it’s in the final build phase of its UltraFan programme, with tests set to start this year. The UltraFan is among the products Rolls-Royce has in its portfolio to encourage more sustainable air travel. It also boasts a suite of technologies that can be used in the group’s energy and power systems segments.

Additionally, the power and flexibility provided by UltraFan gives it the potential to power both narrow and wide-body aircraft. Given that the former is a segment of the commercial market that Rolls-Royce has no exposure to, this would expand Rolls-Royce’s market share in the aero engine space.

Total care of money

Despite all the exciting news, however, it’s crucial to note that the company can’t fund these projects if it doesn’t shore up its balance sheet. As such, Rolls-Royce will have to ensure two things. The first is to wrap up its ITP Aero sale, worth £1.5bn. The second would be to have free cash flow as soon as possible. If this can be achieved, the engine supplier should be able to start paying down its debt by 2024.

Nevertheless, strong tailwinds from the travel industry should help with free cash flow, while three TotalCare deals struck with flypop, Norse Atlantic, and ITA Airways should serve as further catalysts. The deals bring an additional 50 Rolls-Royce engines to the servicing line.

With all that in mind, will I buy Rolls-Royce shares? Well, this week’s developments are certainly enticing. However, I’m still wary about the company’s financials. So, until these show a concrete improvement, I won’t be buying the shares. Instead, I’ll be keeping it on my watchlist for now, and cheering on from the sides.

The post Rolls-Royce shares are in hyper innovation mode! Should I buy? appeared first on The Twelfth Magpie.

More reading

• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• Here’s how much I think Rolls-Royce shares will be worth by the end of 2027
• Could small modular reactors take Rolls-Royce shares to the next level?
• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
• The SpaceX frenzy is over – is it time to look at Rolls-Royce shares again?

John Choong has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Director dealings are essentially insider transactions for shares between directors and the companies they work for. These dealings are always made public, and are often considered a good indicator of a company’s future prospects. However, they don’t get nearly as much attention as other company news due to their complex nature. Nonetheless, here I’m breaking down this week’s biggest director dealings from three FTSE firms.

Rolls-Royce

Rolls-Royce (LSE: RR) a British multinational aerospace and defence holdings company. It is one of the world’s largest maker of aircraft engines, and operates in four different segments. These include civil aerospace, power systems, defence, and new markets. This week, four director dealings were carried out, albeit in small volumes.

• Name: Lee Hsien Yang
• Position of director: Non-Executive Director
• Nature of transaction: Purchase of shares (Share purchase plan)
• Date of transaction: 7 July 2022
• Amount bought: 1,184 @ £0.83
• Total value: £950.59

• Name: Wendy Mars
• Position of director: Non-Executive Director
• Nature of transaction: Purchase of shares (Share purchase plan)
• Date of transaction: 7 July 2022
• Amount bought: 2,198 @ £0.83
• Total value: £1,820.38

• Name: Sarah Armstrong
• Position of director: Chief People Officer
• Nature of transaction: Purchase of shares (Share purchase plan)
• Date of transaction: 7 July 2022
• Amount bought: 147 @ £1.02
• Total value: £149.91

• Name: Rob Watson
• Position of director: President (Rolls-Royce Electrical)
• Nature of transaction: Purchase of shares (Share purchase plan)
• Date of transaction: 7 July 2022
• Amount bought: 147 @ £1.02
• Total value: £149.91

Lloyds

Lloyds (LSE: LLOY) is one of Britain’s biggest financial institutions. Its brands include Lloyds itself, Halifax, and Bank of Scotland. It earns the bulk of its revenue from mortgage loans. A large number of director dealings occurred with Lloyds shares this week.

• Name: Joanna Harris
• Position of director: Interim Group Director
• Nature of transaction: Partnership shares and matching shares
• Date of transaction: 11 July 2022
• Amount bought: 296 @ £0.42
• Amount received: 106 @ nil
• Total value: £124.91

• Name: Antonio Lorenzo
• Position of director: Chief Executive Officer (Scottish Widows)
• Nature of transaction: Partnership shares and matching shares
• Date of transaction: 11 July 2022
• Amount bought: 355 @ £0.42
• Amount received: 106 @ nil
• Total value: £149.81

• Name: Janet Pope
• Position of director: Chief of Staff and Group Director of Sustainable Business
• Nature of transaction: Partnership shares and matching shares
• Date of transaction: 11 July 2022
• Amount bought: 296 @ £0.42
• Amount received: 106 @ nil
• Total value: £124.91

• Name: Stephen Shelley
• Position of director: Chief Risk Officer
• Nature of transaction: Partnership shares and matching shares
• Date of transaction: 11 July 2022
• Amount bought: 355 @ £0.42
• Amount received: 106 @ nil
• Total value: £149.81

• Name: Andrew Walton
• Position of director: Group Corporate Affairs Director
• Nature of transaction: Partnership shares and matching shares
• Date of transaction: 11 July 2022
• Amount bought: 71 @ £0.42
• Amount received: 105 @ nil
• Total value: £29.96

Vodafone

Vodafone (LSE: VOD) is is a British multinational telecommunications company. It predominantly operates services in Asia, Africa, Europe, and Oceania. A significant director exercised their options to purchase Vodafone shares this week.

• Name: Nick Read
• Position of director: Chief Executive Officer
• Nature of transaction: Purchase of shares (Vodafone Sharesave Plan)
• Date of transaction: 11 July 2022
• Amount bought: 22,352 @ £1.01
• Total value: £22,499.52

Types of shares in a SIP

To provide context, there are a few types of shares within a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to flexibly award equity to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this week’s dealings, directors at Rolls-Royce opted to purchase shares under a share purchase plan. This is a form of capital raising by Rolls-Royce which offers shareholders the opportunity to apply for new, additional shares.

As for Lloyds, the director dealings occurred with partnership shares and matching shares. Partnership shares give employees the opportunity to buy shares via deductions from their salary, before tax deductions. But where partnership shares are offered, the company can also offer matching shares, as was the case. This can range up to a maximum ratio of two free matching shares per partnership share purchased. Nonetheless, it’s important to note that matching shares must normally be held in a trust for at least three years, and held for five years in order to receive a full tax relief. However, these shares may be forfeited if an employee withdraws their partnership shares from the trust.

Finally, in the case of Nick Read, the CEO exercised his options to purchase shares under the Vodafone Share Save Plan. These options are exercisable five years from the savings contract start date, provided that the required monthly savings were made.

The post Director dealings: Rolls-Royce, Lloyds, Vodafone appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Here’s how much I think Rolls-Royce shares will be worth by the end of 2027
• Could small modular reactors take Rolls-Royce shares to the next level?

John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Vodafone. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Rolls-Royce (LSE: RR) share price is down 35% this year, having slid below the £1 mark since early April. As the travel industry rebounds, management has guided for the firm’s civil aerospace division to breakeven this year. With that in mind, Rolls-Royce shares could be a bargain at this price. However, there are also a couple of warning signs to look out for.

Why is Rolls-Royce flying so low?

Rising interest rates, rocketing jet fuel prices, and sky-high inflation — need I say more? Making matters worse are the recent airport disruptions. Pent up demand for air travel and a lack of workers has resulted in one of Britain’s main airport, Gatwick, placing flight caps. Additionally, staff at Heathrow Airport will be striking next month, during the industry’s busiest week. If we are to connect the dots, flight cancellations lead to fewer flying hours, meaning less revenue for Rolls-Royce.

The engine manufacturer also faces its own set of worker issues. The company offered a £2,000 bonus to workers last week to mitigate the cost-of-living crisis. However, unions rejected the offer and stated that it, “Falls far short of the real cost of living challenges”. A lack of resolution could lead to a walkout by Rolls-Royce employees, thus hurting its top line even further. But forking out bigger paycheques could impact its bottom line too. For that reason, the board is stuck between a rock and a hard place.

Going nuclear

That being said, Rolls-Royce still has a ginormous backlog of orders. The firm reported a total deal value of £50.6bn in its FY21 results. It’s also managed to ink several large deals since, such as being the main engine manufacturer for the new Airbus A350-F and Qantas‘ Project Sunrise.

Nonetheless, Rolls-Royce is much more than just its civil aerospace division. In fact, its other segments (Defence, Power Systems, New Markets) could very well act as a hedge against a potential slow down in travel. This is largely due to the effects of the Ukraine war.

Aside from the potential increase in revenue from government defence spending, European countries are also desperately clamouring for energy independence. As such, the UK government has allocated £210m worth of funding to Rolls-Royce to further develop its nuclear, small modular reactors (SMR). If successful, this could end up positioning Rolls-Royce as a market leader in nuclear energy in the UK.

Rolls-Royce SMR is able to produce a repeatable factory-built power station, that relies on tried and tested nuclear technology, it can be constructed and made operational far more quickly than conventional bespoke nuclear design and build technology. The Rolls-Royce SMR approach lowers cost, reduces uncertainty and risk for developers and crucially, allows countries around the world to address their urgent need for low carbon energy.

Source: Rolls-Royce SMR

Civil agreement

Despite the exciting ventures however, its other segments rely on the success of its Civil Aerospace division, which generates the bulk of the company’s revenue. Without positive free cash flow (FCF), Rolls-Royce cannot further develop its other divisions and ventures.

Having taken on large piles of debt during the pandemic, the company is still very much recovering. With negative shareholders equity and a slim profit margin for the time being, most of its FCF will be spent on repaying its debt.

Therefore, even though the Rolls-Royce share price is trading at a low level, I’ll only be keeping it on my watchlist for now. Until its financials improve, I won’t be investing in its shares. Instead, I’ll be investing my money in other growth stocks with much better balance sheets.

The post The Rolls-Royce share price could be stuck below £1 for a while. Should I buy? appeared first on The Twelfth Magpie.

More reading

• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• Here’s how much I think Rolls-Royce shares will be worth by the end of 2027
• Could small modular reactors take Rolls-Royce shares to the next level?
• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
• The SpaceX frenzy is over – is it time to look at Rolls-Royce shares again?

John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The engine room

Rolls-Royce’s civil aerospace division is its main revenue driver. The segment generated 41% of revenue in 2021. Of that revenue, 72% is attributed to large engines. It’s also worth noting that while Rolls-Royce generates a huge sum of revenue from engine deliveries, its value proposition comes from the aftermarket. This means it stands to earn more from servicing the engines it delivers. As such, higher flying hours mean more servicing, which results in higher service revenue.

Thankfully for Rolls-Royce, there are plenty of tailwinds as travel demand picks back up. For one, flying hours are forecasted to increase in the medium term. Secondly, freight is anticipated to fly the most hours compared to business aviation and large passenger jets. Therefore, the FTSE 100 firm is expecting more shop visits. Not to forget, the incoming freighter version of the A350, of which Rolls-Royce has a 100% market share, will benefit from this tailwind.

Neo worries

Management didn’t address worries surrounding the cancellation of a chunk of Airbus A330neo orders, but I still remain optimistic. Based on the table below, Rolls-Royce stands to gain a lot more revenue from servicing engines than delivering them.

Management mentioned its goal to service over 7,000 engines by 2030, a 30% uptick from the current number. The Airbus A330’s Trent 700 engine is Rolls-Royce’s most profitable engine. On the conference call, the board mentioned that the Trent 700 still has 40% of its flying hours ahead due to its low average age. With more service extensions and engine demand as well, more service revenue is to be expected in the future.

Things are looking up

It’s no secret that Rolls-Royce’s financials are a nightmare. The British firm has negative shareholders’ equity with staggering amounts of debt. Nonetheless, I have reason to believe that things are looking up. At the investor day presentation, CFO Arvind Balan guided the firm’s civil aerospace division to breakeven this year. This is in line with Rolls-Royce’s wider outlook when it released its Q1 trading update.

Additionally, the London-based firm is seeing higher operating margins. This is down to investments in digitalisation and a leaner production system which includes reuse of parts, as well as a reduction in overheads and R&D costs. Consequently, Rolls-Royce expects free cash flow to comfortably exceed operating profit. From this, I expect the company to be able to start paying off its debt in 2024.

Nevertheless, I am wary of the economic headwinds which could hit flying hours, and as a consequence, Rolls-Royce’s top line. That being said, management reiterated that economic headwinds have been accounted for in their projections. That being the case, I am closely watching Rolls-Royce, and may potentially buy shares once it’s able to settle its debt.

The post The Rolls-Royce Share price may be set for take-off! appeared first on The Twelfth Magpie.

More reading

• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• Here’s how much I think Rolls-Royce shares will be worth by the end of 2027
• Could small modular reactors take Rolls-Royce shares to the next level?
• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
• The SpaceX frenzy is over – is it time to look at Rolls-Royce shares again?

John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Lloyds

The Lloyds share price had dived 2% when these transactions were reported. But that didn’t stop a number of insiders purchasing shares via the company’s share incentive plan (SIP).” A SIP is an employee plan for companies within the UK to award equity to employees flexibly. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

Breaking down the director dealings, it seems that all but Harmeen Mehta purchased shares via Lloyds’ SIP. Within certain transactions, there are partnership shares and matching shares. The former is an invitation to buy shares via deductions from salary pre-tax and National Insurance Contributions (NIC). The latter is an add-on to when partnership shares are offered, where a company matches the number of partnership shares of up to a maximum ratio of two-to-one. Matching shares must normally be held in a trust for at least three years, and held for five to get a full tax relief.

Rolls-Royce

Rolls-Royce had a rather eventful week. Prior to reporting its Q1 2022 trading update, the firm had a slew of director dealings that were reported on Monday and Wednesday. Most notably, a number of high profile directors and executives redeemed and offloaded a large number of shares. Under any other circumstances, this would send alarm bells ringing. Nevertheless, these sales were attributed to covering tax liabilities. As such, it shows that directors are still relatively confident in the company’s future.

BP

After BP reported record profits last week, many were calling for a windfall tax on the oil giant. Such a tax would hinder future investment by the company as any profits would be heavily taxed, thus limiting its earnings potential. That being said, BP directors were unfazed. CEO and Director Bernard Looney, as well as Julia Emanuele, opted to purchase more shares under the firm’s ShareMatch UK Plan, albeit in small amounts.

The post Director dealings: Lloyds, Rolls-Royce, BP appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• Back below 500p, is it time to consider BP shares again?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• Here’s how much I think Rolls-Royce shares will be worth by the end of 2027
• Could small modular reactors take Rolls-Royce shares to the next level?

John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Upbeat Rolls-Royce

East started the AGM statement and Q1 trading update with plenty of positivity.

We are confident that we have positioned the business to achieve positive profit and cash this year, driven by the benefits of our cost reductions and increased engine flying hours in Civil Aerospace together with a strong performance in Defence and Power Systems, and balanced by our commitment to invest in technology and systems that are critical to the leading sustainable solutions we are delivering now and in the future.

Source: Rolls-Royce Q1 2022 Trading Update

Stocking up

It’s no secret that the UK is in for a difficult year. The Bank of England is expected to continue on its quest to tame sky-high inflation with higher interest rates. As a result, the central bank expects an economic contraction later this year, and the tears are already starting to show. March’s GDP figure indicated negative economic growth for the month.

Amid all the macroeconomic uncertainty, it’s always good to hear that a company is well prepared. Rolls-Royce is working closely with suppliers to limit disruption. It has also struck long-term sourcing agreements and designed hedging policies to limit volatility from raw materials inflation. This should give the company short-term protection as it increases its inventory levels.

Moreover, the FTSE 100 firm’s financial performance for Q1 was largely in line with guidance provided in Q4 2021. It saw low-to-mid single digit percentage growth for revenue, while the operating margin of 3.8% is expected to remain largely unchanged. And it should generate positive free cash flow by Q3 2022.

Flying high

The news for Rolls-Royce gets better. Civil aerospace, which is the firm’s largest business segment, gave a positive update. The company reported that flying hours for the first months of 2022 with service agreement customers 42% higher year on year. This should bring in more revenue as longer flying hours leads to more service maintenance. Also, I’m optimistic that the recent deal with Qantas for 24 Trent XWB-97 engines and a TotalCare service agreement will carry the segment into an operating profit this year. Updated guidance says medium-term underlying revenue will grow by an average of 10% annually. Rolls-Royce expects operating margins in the high single-digits and cash flow comfortably exceeding operating profit too.

Nonetheless, I still have reservations about the potential loss of up to 400 engine orders from the large cancellations of Airbus A330neos. Unfortunately, there was no news on this issue in the trading update. Although Airbus reiterated its intention to find buyers, it doesn’t change the fact that the A330neo isn’t a very popular model of aircraft. Perhaps queries about this may be answered at tomorrow’s Civil Aerospace Investor Day. I hope more clarity about the issue will clear the air around the Rolls-Royce share price.

Investment for Rolls-Royce growth

Rolls-Royce is continuing to invest heavily in growth. Hopefully, this will eventually be reflected in its share price. The business expects to support new programmes while securing a larger backlog of orders as governments increase their long-term budget allocations in defence. Plus, the business has already secured a monumental contract with the United States Air Force. Rolls-Royce is contracted to replace the engines of its B-52 bombers in a deal worth up to $2.6bn.

The company’s other segments in power systems and new markets saw positives as well. The first four months of order intake was very strong across the entire business. Both power generation and defence end markets saw the biggest increases. Furthermore, the first engines for power generation, construction, and industrial applications have been approved for operation with sustainable fuels. Given the shift towards greener energy, the development of hydrogen engines should help boost the segment’s top line. More excitingly, the British manufacturer is set to sell its Spanish unit, ITP Aero. The sale should bring in about £2bn. Rolls-Royce plans to use this to pay off its staggering debt.

Speaking of debt

The biggest concern for me is that debt. In fact, the company’s financials are in a dire state. Its balance sheet shows negative shareholders equity. This means that liabilities are greater than total assets. The good news though, is that the firm has no financial obligations until 2024. Therefore, any additional cash that can be allocated this year towards improving the company’s balance sheet is more than welcome.

So, with the Rolls-Royce share price now below £1, will I buy? Well, the London-based firm has plenty of promise and tailwinds and its share price could take off. It also has an order backlog of £50.6bn as of Q4 2021. Nonetheless, I’m a firm believer in Warren Buffett’s investing philosophy. The Oracle of Omaha has repeatedly mentioned that people should only buy stocks in companies that exhibit solid fundamentals. Thus, I won’t be looking to invest in Rolls-Royce shares until its balance sheet improves. But I’ll continue to watch it.

The post Here’s why the Rolls-Royce share price could fly this year! appeared first on The Twelfth Magpie.

More reading

• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• Here’s how much I think Rolls-Royce shares will be worth by the end of 2027
• Could small modular reactors take Rolls-Royce shares to the next level?
• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
• The SpaceX frenzy is over – is it time to look at Rolls-Royce shares again?

John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A new dawn

The news from Rolls-Royce earlier this week certainly got me excited. After years of speculation as to whether the Qantas Project Sunrise would come to fruition, the Australian airline has followed through with its plans. The project is set to “operate the world’s longest commercial non-stop flights, allowing passengers to fly direct between London or New York to the Australian east coast cities of Sydney and Melbourne.” As a result, Qantas is purchasing 24 Trent XWB-97 engines to power the 12 Airbus A350-1000s it has on order. Additionally, the two parties have committed to a TotalCare service agreement for the engines. The service outsources engine maintenance and management to Rolls-Royce, bringing additional revenue.

So, how much does Rolls-Royce stand to gain from this deal? According to experts, a Trent XWB engine costs approximately $35m per unit. Pair that with the TotalCare service, and the FTSE 100 company could stand to profit close to £1bn from this deal over the next few years.

Bomber contract

An even bigger contract is the B-52 Commercial Engine Replacement Program Rolls-Royce has with the United States Air Force. Last year, Rolls-Royce was selected to replace the USAF’s old B-52 engines. In total, the deal is worth a staggering $2.6bn.

Despite the large deal value however, investors should read beyond the headlines. So far, the agreement has only been for an initial $500m over six years, with options to bring the total deal value to $2.6bn over 17 years. Although the potential value is massive, that $2.6bn isn’t a huge amount over the course of two decades. There’s also a risk that the USAF may not exercise the options available in the contract to its full amount, limiting Rolls-Royce’s future revenue.

Clear for take-off?

While the firm has managed to secure reasonably good deals, I don’t see the Rolls-Royce share price taking off any time soon. For one, I think the impact of the recent cancellations of many Airbus A330neos is yet to be felt by the manufacturer. I will be hoping to find clarification on this in next week’s Q1 trading update.

Secondly, although the travel industry has tailwinds backing it, consumers are starting to feel inflationary pressures. This may affect demand for air travel, and aero engines. Finally, JP Morgan‘s bearishness on the firm’s ‘New Markets’ segment isn’t boosting investor sentiment. The investment bank doesn’t think the division will turn a profit given the amount of capital Rolls-Royce has pumped into it. Therefore, although the company has a promising future, I don’t think the benefits outweigh the risks involved for me to invest in Rolls-Royce.

The post When will the Rolls-Royce share price recover? appeared first on The Twelfth Magpie.

More reading

• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• Here’s how much I think Rolls-Royce shares will be worth by the end of 2027
• Could small modular reactors take Rolls-Royce shares to the next level?
• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
• The SpaceX frenzy is over – is it time to look at Rolls-Royce shares again?

John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Engine shutdown

When Rolls-Royce released guidance for FY22, many investors were upbeat about it. The engine manufacturer said it expects to generate positive free cash flow for the year ahead. This was seen as good news considering that it has been years since this feat was last achieved. Not to mention, the introduction of the Airbus A350 freighter, which also provides tailwinds. As a result Rolls-Royce’s Trent XWB engines are expected to see an increase in production. Nonetheless, the share price still remains at underwhelming levels. So, why’s that?

Well, one of the biggest reasons that the Rolls-Royce share price has traded sideways is down to the cancellation of 63 Airbus A330-900s. The A330neo’s engines make up a bulk of Rolls-Royce’s engines on order. Consequently, this cuts the number of Trent 7000 engines on order in half. This isn’t helped by the news that an increasing number of airlines may start grounding their A350s as well, due to surface degradation issues. The results of such a grounding could resort to a bigger hit in revenue from Rolls-Royce’s biggest income stream. Therefore, the previous tailwinds have now shifted, because Rolls-Royce now has a fresh set of problems to deal with.

Staying in economy class

Piling on to Rolls-Royce’s misery, analysts from both Morgan Stanley and JP Morgan seem uncertain about the stock. Although Citigroup and Berenberg rate the stock a buy, Deutsche Bank shares the bearish sentiment, reducing their price target of the stock to £1.10. Analysts at JP Morgan cited scepticism towards Rolls-Royce’s future growth plans. The investment bank is not too optimistic about the new markets division at Rolls-Royce. This segment of the business is supposedly meant to build small nuclear reactors and electrical power for small aircraft. Nevertheless, analysts do not believe it will be able to generate a healthy margin of income and bring the share price up in the long-term future. This, paired with a slowing economy, indicates to me that Rolls-Royce is most likely going to face a tough time for the foreseeable future.

Silver lining

There is a silver lining to the strong headwinds, however. Despite Rolls-Royce’s atrocious balance sheet and high level of debt, the company doesn’t have any debt maturities to pay before 2024. This should buy the manufacturer some time to generate some free cash flow. In spite of that though, I do remain sceptical of the business’s prospects for the near-to-medium term, however. With the engine cancellations continuing, the new markets segment a long way from profitability, and stagflation possibly kicking in, I don’t think the Rolls-Royce share price will be going up any time soon. As such, I will not be buying shares for my portfolio.

The post Here’s why the Rolls-Royce share price is down 25% appeared first on The Twelfth Magpie.

More reading

• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• Here’s how much I think Rolls-Royce shares will be worth by the end of 2027
• Could small modular reactors take Rolls-Royce shares to the next level?
• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
• The SpaceX frenzy is over – is it time to look at Rolls-Royce shares again?

John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.