28th Nov 2023 12:30
(Alliance News) - Investors cheered Rolls-Royce Holdings PLC's latest batch of longer-terms and a set of disposal plans, as the company once labelled by its own boss as a "burning platform" looks to shore up its offering.
The jet engine maker is eyeing an operating profit between GBP2.5 billion to GBP2.8 billion during a "2027 timeframe". It also sizes up an operating margin between 13% and 15% and is aiming for free cash flow of GBP2.8 billion to GBP3.1 billion.
The London-based firm labelled the targets as a "step change" in its financial performance.
"We expect a progressive, but not necessarily linear, improvement year-on-year, and if we can accelerate the achievement of our ambitions we will," Rolls-Royce said.
In 2022, Rolls-Royce's underlying operating profit, to which it compared its goals, was GBP652 million in 2022, up 57% from GBP414 million in 2021.
The firm is also planning a divestment programme targeting GBP1.0 to GBP1.5 billion in proceeds over five years. It is looking to exit Rolls-Royce Electric in the short run or reduce its position to a minority stake in the electric aircraft arm, while pursuing a full exit down the line.
Rolls-Royce said the improved financial performance in its medium-term targets will "create a stronger balance sheet and investment grade profile".
All-in-all, the update was largely positive, according to Swiss bank UBS, though there was one thing that could temper the job.
"The company however maintained the FY guidance, which could weigh slightly on the otherwise bullish update," UBS explained.
Despite the lack of a guidance lift, Rolls-Royce shares shot up 5.9% to 257.50 pence each in London on Tuesday afternoon.
Tufan Erginbilgic was installed as Rolls-Royce chief executive at the start of the year. His tenure has offered promise so far and he made waves just days into his stint as CEO after he described the firm as a "burning platform".
AJ Bell analyst Russ Mould commented: "The early part of this year was all about talking tough about the problems at Rolls-Royce for incoming CEO Tufan Erginbilgic. His harsh rhetoric certainly convinced the market he was serious about fixing the UK engineering giant's problems and this has driven strong share price gains. We're now moving into the next phase where it is less about the diagnosis and more about the cure.
"Erginbilgic has clearly recognised this and has met the moment at today’s investor day with ambitious targets for growth."
By Eric Cunha, Alliance News news editor
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