23rd Feb 2023 18:40
(Alliance News) - Rolls-Royce Holdings PLC pleased investors on Thursday after reporting profit and cash flow which topped expectations, fuelling hopes of a brighter future for one of Britain's best-known names.
The FTSE 100 listed firm, described as a 'burning platform' by new chief Executive Tufan Erginbilgic just days into his tenure, was a warm order with shares rising sharply as operating profits of GBP527 million came in 42% ahead of consensus. Shares in the engine maker closed 21% higher on Thursday in London.
Sales of GBP12.7 billion topped Shore Capital's GBP11.7 billion forecast and free cash flow of GBP505 million compared to the consensus of just GBP115 million.
Susannah Streeter at Hargreaves Lansdown said Rolls has "added thrust to its pandemic recovery, defying expectations with at 57% rise in underlying operating profit, which was much steeper than expected".
Erginbilgic, a former BP PLC executive, also unveiled a seven-pronged transformation plan aimed at improving efficiency and commercial outcomes.
AJ Bell analyst Russ Mould said, "targeting seven areas of improvement at the outset is some going and it’s clearly got investors excited".
"For years Rolls-Royce has disappointed on cash flow and it’s no surprise to see this as an area of priority alongside the standard recovery mantra of improving efficiency, reducing debt and improved performance management."
HL's Streeter felt Erginbilgic "seems determined to fire up returns over the long-term".
She suggested the restructuring plan is likely to see changes made to the global footprint, some divisions scaled back, and investment re-routed into other operations.
Mould also suggested the improved prospects for the aviation sector should help Erginbilgic.
"One of the company's most lucrative areas of operation is providing spares and repairs on an installed base of aircraft engines."
"These are directly linked to how long planes spend in the air, and the pandemic and subsequent uneven rebound in air travel has had a significant impact on the company and its balance sheet," he pointed out.
The engineering firm also recently announced the biggest ever Trent XWB-97 engine order from Air India.
Shore Capital feels Rolls-Royce remains a compelling turnaround story and suggested upgrades and valuation expansion are possible over the next year. It has a 'buy' rating on Rolls-Royce.
By Jeremy Cutler, Alliance News reporter
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved.
Related Shares:
Rolls-RoyceBP