When Rolls-Royce reported its Q1 numbers back in May there was disappointment that management appeared reluctant to raise their full year guidance, with the shares falling victim to some mild profit taking.
Since then, the shares had traded sideways struggling to move above the March peaks at 160p, which had served to cap the gains.
The turnaround in the shares since the start of the year has been remarkable, even more so given the comments from new CEO Tufan Erginbilgic at the end of last year when he labelled the company as a “burning platform”.
Despite this description investors have ploughed back into the company after seeing a modest return to full year profit before tax of £206m, at the end of last year, after the £1.5bn losses of the previous year.
The optimism over the company’s prospects was well merited given that its main revenue earner was and still is maintenance revenue from the civil aviation industry and the return to normal post Covid has seen a big turnaround in its cash flow as well as revenue prospects.
Today’s trading update, ahead of next week’s H1 presentation, has seen the shares soar above 160p and to their highest levels since March 2020, after the company raised its full year underlying profits guidance from between £800m and £1bn, to between £1.2bn and £1.4bn.
Rolls-Royce also raised its free cash flow estimates of between £600m and £800m to between £900m and £1.1bn.
The improvement on margins has been led by civil aviation and defence with H1 underlying profit expected to be between £660m and £680m.
Large engine flying hours are expected to come in at between 80% and 90% of 2019 levels. At the end of Q1 they were currently at 65% of 2019 levels.
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