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Rolls-Royce share price slips back on unchanged guidance

Rolls-Royce aircraft engine

One of the standout performers year to date, the Rolls-Royce share price has surged over 60% since the start of the year, with most of the gains coming since February when the company reported its full year results and raised their profit guidance for the year.

Ignoring the comments from new CEO Tufan Erginbilgic last year that the company was a “burning platform” investors have ploughed back in after the company returned to a modest profit before tax of £206m, after the £1.5bn losses of the previous year.

Underlying revenues rose to £12.69bn, helped by a stronger than expected performance in its civil aerospace division, which saw revenues rise by 25%, coming in at £5.69bn.

Large engine flying hours were at 65% of 2019 levels, with the company expecting this to return to 80-90% of 2019 levels during the current fiscal year in 2023, as China continues to reopen, while new engine orders were received from Malaysia Aviation, Qantas, Norse Atlantic Airways and Air India.

Power systems also saw a solid increase, rising 23% to £3.35bn, while defence saw revenues rise 2% to £3.66bn. Free cash flow returned to positive territory of £505m.

In New Markets, specifically the new Electric and Small Modular Reactors, this continues to run at a loss, as the company continues to await its first order from the UK government, as well as elsewhere.

Today’s Q1 trading update has seen the company maintain the underlying profits guidance of between £800m and £1bn, which was above expectations at the time, as well as improved cash flow of between £600m and £800m.

On long-term engine flying hours Rolls-Royce appears to be ahead of schedule at 83% of 2019 levels over the 4 months to 30th April, and well on track to be between the 80% to 90% laid out in February.

In Power Systems the company said it was getting improved pricing on new orders, which in turn will see higher margins, with the uplift effect of that being seen in H2.  

While there may be some disappointment that Rolls-Royce has left its guidance unchanged, everything that we’ve seen in today’s trading update appears to suggest that the company appears to be ahead of schedule, in its recent recovery.

With the share price still well below the levels it was pre-Covid, the results from Melrose Industries GKN operation yesterday suggest that civil aerospace is on the way back, and with the shares still well below the 250p levels it was pre-Covid one might suggest that there is plenty of scope for further gains, even with the disappointment that guidance has been left unchanged.

All that is needed now is for its New Markets division to start obtaining orders for its New Modular reactor technology and this current slumbering giant could well wake up with a vengeance.

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