After a torrid pandemic period, many analysts, including myself, expected Rolls-Royce (LSE:RR) shares to recover in 2022. However, the engineering firm’s stock is down over 52% in the last 12 months and is amongst the five worst performing FTSE 100 shares for this period.

I have been looking for a quality business to invest £1,000 in before 2023. My criteria are that it must be cheap, offer value, and operate in exciting areas. 

While Rolls-Royce shares look really cheap on paper at current levels, is it the best option for my growth portfolio at the moment? Let’s find out. 

The positives

Rolls-Royce’s balance sheet is improving. Increasing orders from its civil aviation wing for aircraft engines and maintenance is a positive. While international air travel hasn’t recovered as expected, it is still 52% higher than 2021 levels. This could benefit Rolls-Royce shares over the coming months, especially since the pandemic’s fear has died substantially. 

The growth of Rolls-Royce’s new power systems wing is promising. Defence contracts are improving too, fuelled by the Russian invasion of Ukraine. 

The company will play a vital role in the US Department of Defense nuclear microreactor program alongside BWX Technologies. This promising development comes after a long line of orders for Rolls-Royce’s nuclear reactor program, including from the UK government. 

However, the big question for me here is how will the UK’s struggling economy affect this recovery? 

Will the Rolls-Royce share price stagnate? 

Firstly, it is not just one stock that is suffering. The Footsie is down 8.5% in the last six months, pointing to a market-wide pullback. However, Rolls-Royce’s struggles are unique in some ways. The blue-chip firm operates in tough sectors like defence, aviation, and energy. It is constantly among the highest-traded stocks in the UK. Despite these factors, investors are exiting fast. 

One of the perks of investing when the market is down is that stable businesses often rebound quickly, giving smart investors solid returns in a shorter span. However, I do not see this happening with Rolls-Royce shares. Mounting debt has weighed this business down this year. Net debt currently stands at £5.14bn. 

While the £1.4bn sale of ITP Aero will be factored in at the end of this year, debt will still be a concern in 2023. The business returned to profitability in 2021. But due to the high R&D budget, interest payments will continue to chip away at profits for the foreseeable future.

The order book of £6.5bn will help maintain a positive cash flow moving forward. But I have to factor in spendings too. Increasing pressure on renewable power sources means all nuclear projects will be accelerated. This means higher wages and faster turnarounds which will deplete its profits. 

New Prime Minister Liz Truss has also stressed the importance of the UK boosting its own oil and gas reserves. Right now, the energy sector looks fractured with the push for renewable energy proving too expensive. How the new leadership chooses to address this will vastly impact industry profits going forward, especially for firms like Rolls-Royce that have invested heavily in renewables. 

All this adds to the uncertainty around Rolls-Royce shares which is why I am choosing to keep away at the moment, despite the latest crash. 

The post At 69p, are Rolls-Royce shares too cheap to miss?  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?

Suraj Radhakrishnan 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.

While I am willing to overlook a few holes in its balance sheet, I also know that many strong businesses have collapsed during tough economic periods. Here, I will look at the Rolls-Royce share price in detail to judge if the business is worth investing in before 2023. 

Can aviation boost Rolls-Royce shares?

Currently, the UK economy is under swirling clouds of uncertainty. The country is grappling with a huge energy crisis. In fact, reports show that the UK’s energy crisis is the worst in Western Europe. All of this has impacted how investors are looking at the market. 

This also has put an immense strain on businesses, including Rolls-Royce. The firm’s return to profitability in 2021 was a positive marker for investors. However, this already seems to have slowed down over 50% in the first half (H1) of 2022 with just £125m in profits.

The silver lining here is the return of air traffic. Rolls-Royce has already seen a spate of deals for its profitable engine upkeep business. Just today, a new venture with Air China to overhaul and maintain its sizable fleet was signed. 

While the latest crash in the Rolls-Royce share price is triggered by the health of the UK economy as a whole, the engineering firm is slowly looking to reverse recent fortunes.

Future focussed

The big reason why I am still slightly bullish on Rolls-Royce is because of the smart restructure. And the areas it’s exploring now have me buzzing. 

Energy and defence are a huge focus for the firm going forward. The invasion of Ukraine has derailed the energy sector and has countries in the region scrambling to improve defences. This has boosted both industries tremendously. 

And Rolls-Royce is set to play a big role in both. The firm’s small nuclear reactor project was given the green light by the UK government. The power systems division has seen its order book grow by 53% to £2.1bn. The second quarter (Q2) of 2022 especially saw a huge spike in sales. 

The other booming area for Rolls-Royce is defence. The company recently signed billion-dollar deals with the US, UK and German militaries. It holds a vast £6.5bn order book, which includes an 11-year contract to support the Adour engine, which powers UK’s Hawk jets. 

Concerns and verdict

Despite the large order books, profit margins have been falling. Its booming defence wing saw underlying profits fall 32% to £189m compared with H1 2021. The power systems also took a step back. H1 2021’s positive cash flow of £71m was reversed this year, with the sector bleeding out -£76m in H1 2022. 

The board chalked this up to high demand, increasing costs and supply chain challenges. But I think these figures will get worse thanks to rising commodity prices.

There is no denying the intrinsic value of Rolls-Royce shares at 77p. But right now, given the turbulence in the UK, I am waiting for 2022’s full-year reports before investing in Rolls-Royce shares. 

The post Should I snap up Rolls-Royce shares while they are still below £1? 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?

Suraj Radhakrishnan 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.

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.

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

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.

The steady decline of the Rolls-Royce share price over the last two years is well documented. The engineering firm’s shares have fallen over 70% since mid-2020 and 20.5% in the last 12 months of trading. But, things are finally looking up. Just this month, three crucial updates have firmly put Rolls-Royce shares on the radar of many investors, including me.

Here’s what I think these developments mean and why I think a resurgence is on the cards. 

Significance of recent results 

The first big factor that could affect Rolls-Royce’s shares is a return to profitability. And the recently released first-half (H1) results show improvements that strengthen my belief that a rebound is highly likely. 

Free cash outflow for Rolls-Royce across H1 2022 went down by £1.1bn, predominantly due to increased flying hours in civil aviation. This shows me that Rolls-Royce shares benefit a lot if the aviation industry rebounds fully in 2023.

And I think this development could propel the firm to profitability in 2023. Boeing, a global leader in aviation, recently stated that the airline industry will reach 2019 levels by the end of 2023 or early 2024. In fact, April 2022 saw a 78.7% jump in traffic compared to the same period in 2021. And this trend has remained consistent across this year.

Debt has been a sore subject for the Rolls-Royce shareholders. But the approval of the €1.8bn sale of its ITP Aero business, announced last week, is the next big reason why I think Rolls-Royce shares could explode. The board announced that proceeds will be used to plug its £5bn debt, which could significantly bolster investor sentiments when full-year results are released. 

Contracts galore

The final factor behind my bullish stance on Rolls-Royce are the deals signed this month. Malaysia Aviation Group is set to purchase 20 new Airbus A330neos, powered by the Rolls-Royce Trent 7000 engine.

The deal also includes a TotalCare agreement for its fleet. Engine servicing was a major cash cow for the firm before 2020 and I think this is could be the boost Rolls-Royce shares need.

The company also signed a huge contract with the UK government last week. Rolls-Royce’s MTU engine will now power the Boxer Mechanised Infantry Vehicle (MIV) for the British Armed Forces. The company is set to deliver 523 engines between 2022 and 2030 and will also play a big role in developing defence tech for the UK in the coming years. 

Concerns and verdict

The board has stated that fluctuating commodity prices could impact the firm’s supply chain in 2023. In fact, Rolls-Royce’s operating margins dipped to 2.9% in H1 2022 from 5.9% in H1 2022. While this was predominantly because of a few one-time payments received last year, it also shows the impact of inflation on the business.

The group still expects single-digit underlying revenue growth this year. But this could underwhelm potential investors as there are FTSE 100 shares growing at a much faster rate right now. 

However, Rolls-Royce is an established leader in the aviation space and has exciting projects in emerging areas. It operates closely with the UK government and is supporting the nation’s net-zero ambitions and also developing weapon tech.  And if the above-mentioned trends continue as expected, the company could reach stability soon, making Rolls-Royce shares an FTSE 100 darling again. 

The post 3 reasons why Rolls-Royce shares could be a big winner in 2023  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?

Suraj Radhakrishnan 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) 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.

In October 2020, the Rolls-Royce (LSE:RR) share price dropped to 38p. That was its lowest point in a decade, which highlights the incredible impact the pandemic had on the firm.

Since then, Rolls-Royce shares have struggled to break the 100p barrier. Share prices are down 28% in 2022 and 18% in the last six months. In fact, Rolls-Royce ranks 79th in the FTSE 100 index for returns in 2022.

But investors have seen some positive price action recently. In the last month, shares are up nearly 9%. And I think investor sentiment surrounding the company is finally trending in a positive direction. While these are the strongest signs of a turnaround in years, can the Rolls-Royce share price finally gain enough momentum to make a comeback? Let’s find out.

Last call before take off

With civil aviation still witnessing a laboured return to profitability, Rolls-Royce has used the downtime to overhaul its R&D. I think one of the most promising projects to come out of the engineering firm in recent times is the record-breaking hybrid electric aircraft.

With the renewable energy lobby getting stronger by the minute, electric engines are all the rage. And Rolls-Royce expects its all-electric passenger aircraft, in development with Norwegian firm Widerøe, to enter the market within a decade. This could overhaul the aviation industry and Rolls-Royce would be the chief architect.

Another big development today for the company is the long-term TotalCare servicing deal signed with Vietnamese airline VietJet for its fleet. This is the largest recent order for Rolls-Royce, which has faced huge losses without engine upkeep contracts. And I see this deal as a strong sign that civil aviation is getting back on track.

Growing order book and revenue

Rolls Royce’s thriving power systems and defence wings could be the lifeline it needed. Green energy has become a huge driving factor behind governmental grants and private investments. The latest proposal from the UK government expects a £400bn inflow into the sector within the next 5-10 years.

And Rolls-Royce’s small nuclear reactor project could have a big role to play. Last year, the firm received an order intake of £3.3bn, 24% higher than 2020.

Rolls-Royce’s defence order book has also grown considerably in the last six months. The company has a close partnership with UK’s air defence systems and is currently developing anti-missile tech and hypersonic missiles. This comes after the recent push to bolster defence systems across the world after Russia’s attack on Ukraine.

Yes, Rolls-Royce’s huge debt of £5.1bn is a concern. Also, while civil aviation is recovering, losses from two years of grounded planes could weigh on the company for a few years. Also, these recent R&D projects are not cheap. In fact, the company is spending in excess of £1bn a year on exploring new tech. While this is a reason why I am bullish on the company, it could also quickly turn sour for investors.

This brings me to why I am awaiting Rolls-Royce’s half-year results, scheduled for 4 August. Evidence of positive cash flow could trigger a recovery in this reactive market. But if the large order book doesn’t translate to cash-in-hand, Rolls-Royce shares will continue to struggle. I am watching the results carefully and would make an investment if they are favourable.

The post Up 9%, are Rolls-Royce shares finally changing course? 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?

Suraj Radhakrishnan 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.

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• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
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• Here’s how much I think Rolls-Royce shares will be worth by the end of 2027
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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 (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.

Since the pandemic crash, investors have been anticipating a bounce back from the Rolls-Royce (LSE:RR) share price. Economic turbulence and constant travel restrictions have set the company back. And Rolls-Royce shares are down 30.7% in 2022 so far and 19% in 12 months. 

But over the last month, the story has been different. While the FTSE 100 is down 4%, the Rolls-Royce share price has risen 6.1%. Is this the turnaround we have all been waiting for? And will I invest in Rolls-Royce shares right now? Let’s find out.

Can this trigger a Rolls-Royce share price recovery?

Over the last two years, I have followed Rolls-Royce’s ambitious restructuring closely. And its efforts have been very impressive. The company identified market demands in its engineering wheelhouse and is now a full-fledged power and defence company along with its civil aviation business.

But Rolls-Royce has also been finding innovative uses for its engines and is now a high-demand product in an unlikely but booming industry. Its mtu engine has been chosen by Chinese generator giant Hefei Calsion to power generator systems in several Chinese semiconductor factories. And I see this as a big boost for Rolls-Royce shares because this could open up a huge potential market for the company.

We are currently in the midst of a semiconductor crisis. The demand for high-capacity chipsets is at an all-time high. Semiconductor chip manufacturers require a steady power supply without even the slightest voltage drop. This is where the reliability of Rolls-Royce’s engines comes into play.

Other positives (and concerns) to consider

I examined the company’s massive defence order book and promising nuclear reactor contracts in December. Both divisions could become high revenue generators in just a few years, which could further boost the Rolls-Royce share price.

With rising geopolitical tensions, defence spending has increased considerably over the last 12 months. And this has also strengthened Europe’s push to be energy efficient and phase out crude oil. And Rolls-Royce benefits from both. 

But a big area of concern is the talent drain. The company will lose popular CEO Warren East and power systems boss Andreas Schell by the end of 2022. The company will have to rehire effectively to ensure that the nuclear reactor project remains uninterrupted. 

And the huge debt pile of £5.1bn is an eyesore that will eat into future revenue. The company has increased its spending on R&D for its small nuclear reactor project and the new Pearl 10X engine. Also, the current operating margin of 3.8% is pretty low. And the company expects this to continue beyond 2022, given the high R&D investment. This could affect the Rolls-Royce share price when results for 2022 are released. 

However, as a potential investor, I think the company’s involvement in these cash-generating sectors is a big plus. I think the business is now streamlined and has focused on the right areas. I am very bullish on both the energy industry and defence. And Rolls-Royce shares offer exposure to diverse markets that will be crucial to my long-term portfolio. The company remains firmly on top of my watchlist and I would consider an investment if the Rolls-Royce share price drops below 80p this year. 

The post Up 6%, can the Rolls-Royce share price finally 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?

Suraj Radhakrishnan 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.