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Here are two beaten-down growth stocks I like the look of today

Dylan Hood — Tue, 30 Aug 2022 06:44:00 +0000

2022 has been a year characterised by surging inflation. Caused by supply bottlenecks from Covid-19, ultra-low interest rates, and magnified by the Russia-Ukraine crisis, inflation reached 10.1% in the UK in July. Across the Atlantic, the situation was similar, with prices rising 8.7% year on year in July.

With inflation rising, central banks are hiking interest rates. This is placing big pressure on growth stock valuations, as people pull their money out of speculative assets. At historically low prices, I’m looking for bargain growth stocks that could land me some big returns in the future. Below are two stocks I currently have my eye on.

NIO

NIO (NYSE: NIO) is a Chinese electric vehicle manufacturer. It had a standout year in 2020, when its shares climbed over 1,100%. However in 2022, things haven’t been as easy with the shares falling 40% year-to-date. Over 12 months, the shares are down 47%.

The reason I like the look of this stock is due to its remarkable results. In Q1, the firm saw its year-on-year deliveries rising by 29%, with revenues climbing by 24%. Although NIO is still loss-making, its losses shrank 10% compared with the previous quarter, which is a good sign. In 2021, revenues soared by over 122%!

NIO also boasts some market-leading tech when it comes to battery charging. Its cars feature unique battery swapping technology that can be applied in a matter of minutes. Being the only manufacturer to offer this service, I think the stock is well poised to capture market share.

Rolls-Royce

Rolls-Royce (LSE: RR) is a UK-based civil engineering and defence company. It was hit hard by the pandemic in March 2020 and recorded a hefty £4bn loss for that year. However, recently the firm reported a profit for the first time since then, signalling a strong recovery so far in 2022.

Rolls makes the majority of its money from servicing aeroplane engines. With global travel increasing, I think Rolls could be in a great spot for growth this year. In 2020, just 1.8bn travellers boarded planes. Fast forward to 2022, and it’s predicted that 3.5bn customers will board flights. This should help boost revenues so the group can keep delivering profits.

Rolls is also leading the stride in small-to-medium-sized nuclear reactor technology. It expects to receive clearance to roll out these reactors by 2024 and has already signed contracts with governments around the world to implement them.

The caveat

I think that both of these companies exhibit some great fundamentals. However, no matter how these firms perform over the coming year, rising inflation could continue to plague their stock prices. If this is the case, then they could fall even lower – regardless of their encouraging results. However, adopting a long-term view, I think these stocks could be great additions to my portfolio at their current prices.

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Dylan Hood 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.

I think now is the time to buy this FTSE 100 growth stock!

Dylan Hood — Mon, 08 Aug 2022 11:34:23 +0000

Rolls-Royce (LSE: RR) shares have continued to struggle over the past few months, a trend the company has endured since the start of the pandemic. Year to date the stock is down 35% and over a longer 12-month span it’s down 24%. However, I think that at the current price of 83p, now could be a great time to buy the stock for long-term growth.

Positive developments

When Rolls-Royce announced its FY21 results, they showed the firm had returned to profit after making a loss in 2020. Coming in at a modest £10m, the profitability marked a steep recovery from the £4bn loss the year before. More recently, Rolls released its H1 2022 results, in which I also saw some positives. Although it reported a loss for the period, there was a record order intake for Power Systems and a £1.1bn free cash flow improvement. The company also announced that margins are expected to increase throughout the second half of 2022. This should help it deliver a profitable full year.

In addition to this, Rolls is making great progress in delivering on some of its key strategic targets. For example, the disposal of subsidiary ITP Aero has now received regulatory clearance and is expected to happen soon. This will help free up cash and ease the pressure of the £5bn debt on the company’s balance sheet. It has already delivered on promises to cut costs by £1.3bn in 2021. This was a pivotal move to help it recover from the pandemic.

There are also several other positive signs for the company. For example, its leading position in small-to-medium nuclear reactor technology. Rolls expects to receive approval for these in mid-2024 and has already received interest from various governments around the world.

Finally, flight numbers are steadily increasing, which is good news for a company that makes most of its money servicing jet engines. For example, large engine flying hours increased 42% in the first half of 2022 compared to 2021, which will help increase the firm’s top line.

Not out of the woods yet

It’s no secret that the macro economy is pitted against growth stocks at the moment. Inflation is reaching sky-high levels – a whopping 12.7% in June in the UK. This is being coupled with an increase in interest rates. As rates rise (as they did again last week in the UK and US) investors can earn a higher risk-free rate. This deters people from investing in speculative assets like growth stocks. Interest rates are expected to rise more throughout the rest of 2022 and beyond. This could inhibit the growth of Rolls’ shares.

Why I’m buying

At 83p, Rolls shares are the cheapest they’ve been for a while. There are macroeconomic considerations to take into account, of course. But taking a long-term view, I think the stock could deliver serious gains. It’s returning to profitability, with a number of exciting projects in the pipeline, so I’m looking at adding Rolls-Royce to my portfolio today.

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Dylan Hood and The Motley Fool UK have 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: Rolls-Royce, Lloyds, Vodafone

John Choong — Sat, 16 Jul 2022 07:00:12 +0000

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 @ Â£0.83
Total value: Â£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 @ Â£0.83
Total value: Â£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 @ Â£1.02
Total value: Â£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 @ Â£1.02
Total value: Â£149.91

Lloyds

Lloyds (LSE: LLOY) is one of Britainâs 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 @ Â£0.42
Amount received: 106 @ nil
Total value: Â£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 @ Â£0.42
Amount received: 106 @ nil
Total value: Â£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 @ Â£0.42
Amount received: 106 @ nil
Total value: Â£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 @ Â£0.42
Amount received: 106 @ nil
Total value: Â£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 @ Â£0.42
Amount received: 105 @ nil
Total value: Â£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 @ Â£1.01
Total value: Â£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 itâs tax-efficient for both the employer and its employees.

Types of shares within a SIP (Source: BDO.co.uk)

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.

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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 share price could be stuck below £1 for a while. Should I buy?

John Choong — Sun, 26 Jun 2022 07:00:01 +0000

The Rolls-Royce (LSE: RR) share price is down 35% this year, having slid below the Â£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 â 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 Â£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 Â£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 Â£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 Â£1 for a while. Should I buy? appeared first on The Twelfth Magpie.

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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.

Rolls-Royce shares are rising! Should I buy now?

Dylan Hood — Wed, 22 Jun 2022 07:26:00 +0000

Rolls-Royce (LSE: RR) shares have struggled ever since the pandemic hit in 2020. Sinking to a low of just 38p in October 2021, the shares have been hovering around the 100p mark ever since. In fact, over the last 12 months, they’ve fallen 16% and year-to-date they’re down an even larger 28%.

However, things seem to have turned around for the aerospace giant as the shares have risen 9.5% in the last 30 days. With Rolls-Royce seemingly regaining some momentum, is now the time for me to buy? Let’s investigate.

Watershed results

Rolls-Royce recently announced its FY2021 results. It’s one of the main reasons why the shares have risen recently as it reported a profit. Although it was only a modest £10m, it was a significant moment for Rolls, which recorded a £4bn loss in 2020. Margins rose by a hefty 23%, which is also very encouraging. And it managed to curb its cash consumption, which fell from £3bn in FY2020 to £1.4bn in FY2021.

In these results, the company also announced that it achieved its restructuring plans, cutting costs by £1.3bn for the year. This was achieved through a 70% decline in capital expenditure and a 34% reduction in headcount. This is great news for a potential investor like me, marking a return to an investment-grade balance sheet.

Looking into the future, I think Rolls-Royce shares have good prospects. The firm is a leader in small modular reactor (SMR) technology and expects approval for the manufacture of these nuclear plants in the UK in mid-2024. If these plans materialise and Rolls remains the industry frontrunner, then it could open a potentially vast market. This would undoubtedly boost the shares.

Rocky road ahead

One big worry I have for the company is how much debt it has. With over £7bn on its balance sheet, Rolls could be hit hard by rising interest rates. As interest rates rise, this monumental debt could become amplified, adding to the cash burn burden the company has worked so hard to reduce. However, Rolls has taken steps to remedy its debt, like selling its subsidiary ITP Aero. Yet this is only a partial fix to a much broader problem.

In addition to the high debt, Rolls-Royce shares could seem overvalued when looking at its fundamentals. The shares currently trade on a price-to-earnings (P/E) ratio of 61. Competitor General Electric trades on a much lower forward P/E ratio of 24. I think the lofty valuation isn’t reflective of the macroeconomic risks the company faces. That being said, this figure should fall drastically once Rolls starts generating consistently higher profits.

The verdict

So overall, I think Rolls-Royce shares could be an attractive investment opportunity for my portfolio. The valuation is super high, but I think this will return to an acceptable level once the company starts to churn out higher profits. In addition to this, the future plans the firm has excite me. Therefore, I would be happy to add shares to my portfolio at 91p.

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Here’s why the Rolls-Royce share price is down 25%

John Choong — Tue, 19 Apr 2022 07:34:00 +0000

Rolls-Royce (LSE: RR) is one of the world’s biggest aircraft engine manufacturers, but also makes power systems. With the majority of its revenue stemming from aircraft engines, I would have expected the Rolls-Royce share price to increase as global air travel resumes. However, its share price is still down 25% year to date (YTD). Here’s why.

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.

Engine Type	Airframe	Market Share	Engines in Service	Engines on Order
Trent XWB	Airbus A350	100%	764	859
Trent 7000	Airbus A330neo	100%	130	*150 (550 Previously)
Trent 1000	Boeing 787	33%	604	122
Trent 900	Airbus A380	48%	168	1
Trent 800	Boeing 777	40%	176	0
Trent 700	Airbus A330	60%	1,146	0
Trent 500	Airbus A340	100%	92	0
Total			3,080	1,073

Table source: Rolls-Royce Investor Presentation 2022 (*Numbers are speculated based on initial reports)

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 Â£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.

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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.

Should I add Rolls-Royce shares to my portfolio today?

Dylan Hood — Mon, 06 Dec 2021 08:49:53 +0000

Rolls-Royce (LSE: RR) shares were devastated by the pandemic, falling drastically from their pre-Covid level. However, in the last quarter, momentum seemed to have picked up for the firm, with the shares climbing to 144p during October.

This momentum quickly ended, however, with the announcement of the Omicron variant. The shares have slumped over 12% in the past 30 days as a consequence. Does this present me with a buying opportunity? Let’s take a closer look.

Rolls-Royce share price outlook

Rolls makes the majority of its money from servicing jet engines. As such, the constant travel bans have plagued share price growth. While things seemed to be easing, the Omicron variant has led to a resurgence in coronavirus regulations. Many long-haul flight routes have virtually halted. The bad news was felt across the travel industry, with IAG and EasyJet both seeing double-digit share price drops after the news broke. In addition to this, many analysts don’t expect the aviation industry to fully recover until 2024. If this is the case, it could place a lid on the future growth of Rolls-Royce shares.

However, the Omicron variant has also boosted government responses to the coronavirus. For example, in the UK Covid-19 booster jabs are now being rolled out at a much faster rate to combat the variant. With more and more of the UK population vaccinated, it’s likely that travel numbers will ultimately increase. This could help keep Rolls-Royce shares afloat.

I think the 2022 summer season could prove pivotal for the travel industry. If the sector can enjoy high capacity, then consumer sentiment may be restored. This could lead to more abundant travel throughout the latter half of 2022, speeding up recovery for the sector. This would be great news for Rolls-Royce shares. However, it’s contingent on governments tackling the virus effectively.

Economic problems

One thing that worries me about Rolls-Royce is the firm’s capital structure. It currently has over £4bn of debt on its balance sheet, largely from pandemic-linked loans to keep the firm afloat. The reason this worries me is tied to the direction of the UK economy. Inflation has been steadily creeping up of late, with UK consumer price inflation (CPI) hitting 3.8% over the past 12 months. This is almost double the UK’s target of 2%. Due to these high increases, many investors are expecting an increase in interest rates. If this occurred, it would add to Rolls’ debts.

In just over a week, Rolls will release a trading update. I think this will prove pivotal for the direction of Rolls-Royce shares. In addition to this, it will show investors if the recent addition of Anita Frew as a non-executive director might be making an impact. Frew has chaired multinational chemicals company Croda International for the last five years, delivering huge success. If the report contains some good results, I’d hope that Frew’s impact on Rolls’ management could lead to some great longer-term growth for the firm.

Overall, although Rolls-Royce shares do look cheap to me, I’m not confident enough to buy just yet. I’ll be waiting eagerly to see the firm’s trading update before I consider adding the stock to my portfolio.

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Dylan Hood has no postition 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.

Is the rising Rolls-Royce share price a buying opportunity?

Dylan Hood — Mon, 06 Sep 2021 06:35:07 +0000

When I last covered the Rolls–Royce (LSE: RR) share price in July, it was struggling to break above the 100p barrier. The shares are now sitting 17% higher at 111p, bringing one-year returns to just under 50%. Having been decimated by the pandemic, it seems sentiment towards the aerospace giant may finally be improving. Still way off pre-pandemic levels, this stock could continue climbing – so is now the right time to buy in?

Ready for take-off

The Rolls-Royce pandemic recovery seems to be taking flight. The 2021 half-year results backed up this view. Underlying operating profit reached £307m, contrasting with a £1.6bn loss in the same period for 2020. The company is still operating with a negative cash flow, but the figure has been reduced by over £1.5bn compared to 2020 H1. These metrics give me confidence that the Rolls-Royce share price can continue to pick up.

The business has also emerged from the pandemic as a much more streamlined entity. The firm was forced to cut 7,000 jobs in 2020 due to a $4bn crippling loss. A further 2,000 jobs were announced to be cut in 2021 and Rolls said this process is now 90% complete. These cuts should help strengthen the firm’s liquidity position and rebuild the balance sheet, with it targeting £2bn free cash flow for the year.

The firm also announced the appointment of Anita Frew as a non-executive director. Frew will also be replacing Sir Ian Davis as chairperson in October. Frew is the current chair of chemicals company Croda International, which has seen huge success over the last five years. New management, coupled with a streamlined balance sheet, could be a recipe for success over the coming years. If this is the case, I expect we could see the Rolls-Royce share price reach its pre-pandemic levels once again, or even push higher.

Rolls-Royce share price risks

Good news aside, there are still risks moving forward for Rolls. One risk I am aware of is the rising threat of inflation. The Bank of England has warned that inflation may creep to 4% as the economy fully reopens and people begin spending normally again. If this is the case, it opens the door to increasing interest rates. This is very bad news for a company that currently has £4bn debt.

In addition to this, it is still going to be some time before flight numbers are back to normal levels. Analysts at McKinsey estimate the aviation sector won’t reach pre-pandemic levels until 2024. As Rolls makes the bulk of its money servicing jet engines, this may place a lid on business. In turn, this may also halt the Rolls-Royce share price growth.

Overall, I think the coming months may still prove shaky for Rolls. That being said, I do like the long-term outlook for the firm. I will be placing this stock on my watchlist.

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Dylan Hood has no position in any shares mentioned above. The Motley Fool UK has recommended Croda International. 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.

Can the Rolls-Royce share price rise in the months ahead?

Dylan Hood — Mon, 12 Jul 2021 11:07:45 +0000

The Rolls-Royce (LSE: RR) share price has followed a disappointing trajectory over the past few years. Climbing to 130p near the end of 2020, it seemed the stock may have been gaining momentum. However, this was not the case. Currently sitting at 97p, the Rolls-Royce share price has hovered around the 100p mark for most of 2021. It’s up only 6% year-on-year and this raises the question: can the share price rise higher over the next few months?

Rolls-Royce share price problems

The pandemic hit Rolls-Royce hard. The firm was forced to cut 7,000 jobs in the face of a £4bn loss for 2020. Rolls makes most of its money servicing aeroplane engines, but with the travel industry grinding to a halt during the pandemic, business dried up. This forced the company to issue 6.4bn new shares in October 2020. While this raised £2bn, it halved the value of the share price, vastly reducing the earnings per share.

2020 was a bad year for Rolls-Royce, but the firm was experiencing problems even before the pandemic. In 2019, problems with its Trent 1000 engines forced the firm to fork out nearly £800m. This raised the total cost of Trent 1000 engine setbacks to £2.4bn for 2017-23. These expenses put a huge strain on free cash flow, something the firm could not afford going into the pandemic.

Results dependent

On 5 August, Rolls will be publishing its half-year results. This will offer investors insight into the future direction of the business. The firm itself has set out several targets for the last six months of 2021 and for 2022. These include turning free cash flow positive by the end of 2021 and achieving annualised savings of over £1.3bn by the end of 2022.

The half-year results should give investors a closer idea of the progress of these targets. If targets are looking achievable, I believe we will see positive growth in the Rolls-Royce share price. However, these targets are heavily reliant on the increase of engine flying hours. If travel problems linked to the pandemic persist, it could vastly reduce the likelihood of these targets being reached.

Will the shares climb higher this month?

I expect the August results will be a good indication of the direction of the Rolls-Royce share price in the coming months. However, this month’s share price will rely on a broader range of factors. The UK is set to abandon all Covid-19 restrictions on 19 July. If this is pushed back (again) it will likely hinder any immediate Rolls-Royce share price growth. In addition to this, in an interview with Bloomberg this month, Engineering and Technology Director Simon Burr asserted his optimism in moving beyond the Trent 1000 jet engine problems. Encouraging statements like this are great for investors’ confidence and could help drive up the Rolls-Royce share price.

I think it’s hard to say if the share price will rise in the immediate future. It has shared its plans to overcome 2020 problems and the August results should highlight the probability of these targets being achieved. If the results bring good news, I think we could see a rise in the Rolls-Royce share price immediately afterwards and in the coming months.

The post Can the Rolls-Royce share price rise in the months ahead? appeared first on The Twelfth Magpie.

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Dylan Hood has no positions 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.

Will the Rolls-Royce share price fly this summer holiday season?

Harvey Jones — Thu, 06 May 2021 13:17:48 +0000

The euphoria surrounding last year’s Rolls-Royce Holdings (LSE: RR) share price revival has faded as investors take a more realistic view of its prospects. Incredibly, its stock quadrupled between October and December last year, and investors who bought at the right time will have made a fortune. Sadly, I wasn’t one of them.

Despite a second wind in February, the Rolls Royce share price trades at the same level as this time last year, and is down two-thirds measured over three years. More investors will have lost big money on this FTSE 100 stock than made it.

The aircraft engine manufacturer generates most of its revenues from maintenance and service contracts. These are based on miles flown and they collapsed as Covid grounded global fleets. Management has adopted the usual measures facing troubled companies, including rescue packages, non-core asset sales, laying off staff, restructuring, scrapping dividends and so on.

FTSE 100 pandemic victim

Yet it can only do so much to cut costs and prop up the Rolls-Royce share price. Ultimately, it needs customers to start flying their planes again. I fear this year’s summer holiday season may prove another washout, as governments remain reluctant to risk a Covid resurgence by freeing people to travel in large numbers.

Vaccination passports may help, but will people fly with the same alacrity as before? Many will recoil at the thought of sitting in a crowded plane with strangers, followed by hours queuing at passport control after all the social distancing campaigns we’ve been through.

And if Covid continues to ravage parts of Asia and Latin America, many countries look set to remain off-limits for some time to come. There’s some good news as the US and China resume domestic flights, but the international long-haul market will take even longer to put right. This is where Rolls-Royce has most of its market.

The Rolls-Royce share price may fly low for a while

In March, Rolls-Royce reported a worse-than-expected £4bn annual loss but stood by predictions that cash would start flowing again in the second half of this year.

I might be too pessimistic here. We could see a Rolls-Royce share price revival. Vaccines are working. Flight activity has to pick up from here, albeit slowly. Defence sales are up. The group’s Power Systems and ITP units look promising. Investors may decide it has been oversold.

I find the stock hard to judge, though, as I cannot assess the Rolls-Royce share price using traditional measures such as the P/E ratio, operating margins, and return on capital employed. And there’s no dividend while I wait for management to turn this crate around. Rolls-Royce is barred from returning cash to shareholders before the end of next year, at the earliest.

One figure does jump out. Rolls-Royce has £7.3bn of loan obligations. So I don’t think its share price is cheap enough to count as a bargain. In fact, it looks like a risky way to play the post-Covid recovery. It’s not for me.

The post Will the Rolls-Royce share price fly this summer holiday season? appeared first on The Twelfth Magpie.

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Harvey Jones 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.