This year, Rolls-Royce’s [RR] share price performance has gone from bad to worse as the stock hit a 15-year low in the spring, and then plummeted further to its lowest level in 17 years.
Rolls-Royce’s share price reached 683.12p on 12 February, its highest close in 2020. The next day, the stock went on to hit an intraday high of 711p (its highest value this year), before closing significantly lower at 652.24p.
As COVID-19 panic started affecting the markets, Rolls-Royce’s share price tumbled to 328.47p on 23 March — marking the start of a tumultuous time for the stock.
Rolls-Royce’s share price suffered alongside others in March and fell even lower on 3 April, closing at 251.60p — representing a 62.3% year-to-date loss.
Apart from a short-lived rally in early June, Rolls-Royce’s share price has followed a downward trajectory throughout the year, slumping to an intraday low of 100.81p on 1 October.
As of 2 October, Rolls-Royce’s share price was down just short of 83% for the year.
This follows recent announcements that the company plans to raise £2bn in a rescue rights issue, in a bid to survive the coronavirus crisis. It also plans to gain government support for a debt package of up to £3bn, according to the Financial Times.
What caused the crash?
Rolls-Royce is one of the leading engineering companies in the world, but as much of its business is tied to the aviation industry — with more than 13,000 aircraft engines in service around the world — it has faced considerable headwinds as the coronavirus pandemic continues to disrupt international travel.
The dip in travel has, in turn, curtailed the demand for planes. As many aircraft remain either temporarily or permanently grounded, Rolls-Royce has been deprived of the revenue it makes on maintaining the engines when they’re in use. In total, Rolls-Royce reported a £5.4bn net loss for the first half of 2020.
“We ended 2019 with good operational and financial momentum. However, the COVID-19 pandemic has significantly affected our 2020 performance, with an unprecedented impact on the civil aviation sector with flights grounded across the world,” said Warren East, CEO of Rolls-Royce, in the company’s half-year results in August.
“We ended 2019 with good operational and financial momentum. However, the COVID-19 pandemic has significantly affected our 2020 performance, with an unprecedented impact on the civil aviation sector with flights grounded across the world” - Warren East, Rolls-Royce CEO
In the same statement, Rolls-Royce said: “We continue to review a range of funding options to further strengthen our balance sheet.”
The new £2bn fundraising package would offer shareholders 10 shares at 32p for every three they already own, reports the Financial Times. In a further statement, East said the measure would help Rolls-Royce navigate the “current uncertain operating environment”.
Analysts’ outlook on Rolls-Royce’s share price
As the company desperately scrambles for more cash, the question is whether investors will take up the offer, or if they will feel Rolls-Royce’s share price is riskier than it’s worth.
“An £8bn hole will need much more than a £1.5bn rights issue,” said JP Morgan analyst David Perry in August, as reported by This Is Money. “We believe Rolls-Royce needs to raise at least £6bn [through equity raise sales and disposals] to put itself on a sound financial footing.”
“We believe Rolls-Royce needs to raise at least £6bn [through equity raise sales and disposals] to put itself on a sound financial footing” - JP Morgan analyst David Perry
Perry noted that the company's debt will be almost £19bn by the end of the year, and that £1.5bn is unlikely to be enough to save the firm.
On the other hand, Chris Hallam, analyst with Goldman Sachs, has maintained both his price target of 439p and his Buy rating on the stock.
The consensus among 19 analysts polled by the Financial Times is equally split between Hold and Underperform, with six analysts on either side. The experts are definitely divided, with three analysts rating Rolls-Royce’s share price an Outperform, two suggesting to buy Rolls-Royce at its current price, and another two rating it a Sell.
The median 12-month price target among 15 analysts tracked by the Financial Times is 200p, with a high estimate of 564p and a low of 115p. The median target represents a 62.07% increase from Rolls-Royce’s share price as of 5 October’s close.
|Operating Margin (TTM)||-13.06%|
|Quarterly Revenue Growth (YoY)||-26.1%|
Rolls-Royce share price vitals, Yahoo Finance, 6 October 2020