Hydrogen Economy
14 Feb 2017
Analysts disagree whether RR has 'turned a corner' [link] gyrations would tend to confirm there are varied views on the results, I didn't see much encouragement there. I wonder if the photo heading this piece is the new new fan Warren East ordered for his office, he must be feeling the heat,H2Analysts disagree over whether Rolls-Royce has 'turned a corner'Oliver Haill Sharecast | 14 Feb, 2017 09:29 - Updated: 10:22 | | | With the furore around Rolls-Royce's record loss due to new reporting standards having mostly subsided, Jefferies wondered whether "a corner has been turned", but others saw 2017 as just another transition year.The FTSE 100 engine maker reported a £4.6bn pre-tax loss after the new reporting rules led to it making a massive write-down after the fall in the pound.Jefferies was most encouraged that civil large engine aftermarket revenues adjusted for contract accounting grew by 2% organically over the year after the 6% organic decline in the first half."Growth in these revenues is the key as we expect cash receipts from flight-hour payments to grow much faster than spend on overhauls," analysts said.Also bolstering Jefferies 'buy' rating was the 2017 free cash flow guidance of £100m, with R&D and capex sustained, this makes clear that positive cash flow is happening for operational reasons, not due to lower investment."The turn may be slow in financial terms, but operationally and fundamentally it is faster, in our view," Jefferies said, pinning a 900p target price on the shares.JP Morgan Cazenove's initial reaction was that "it is reassuring to see RR has stabilised the ship" but analysts said they wanted some time to fully analyse the results.Goldman Sachs noted that while results were ahead of expectations, free cash flow performance was driven by working capital improvements both underlying and due to payment timing around the year end, which will reverse in early 2017, while cost savings are ahead of plan but only by £10m.In its short flash note, Goldman analysts felt the outlook for 2017 was "mostly positive", pointing out that consensus forecats currently expect 2.7% revenue growth in 2017 versus reported 2016 numbers.In a more detailed look, Kepler Cheuvreux said while the 2016 sales beat expectations by 2%, underlying profit before financing was 16% ahead and FCF was positive when most expected the opposite, the dividend was 7% below target.In the light of strong 2016 results, Kepler hoped for "bolder" FCF guidance for 2017 rather than for a level similar to 2016, at GBP100m, which is circa £30-40m ahead of current consensus expectations "but no material change".Kepler said the better-than-expected FCF performance "appears to be a one-off, rather than an indication that FCF generation is ahead of the expectation curve. Any indication that 2018 FCF could be ahead of the current consensus at £440m would be a share price driver."For now, 2017 appears to be another transition year," it concluded, maintaining its 'reduce' rating and 570p target price.
nk1999
14 Feb 2017
Re: Share price Akis,As per my limited knowledge, Financing costs are things like Interest on Debt, Mark To Market adjustments on financial hedges and debt,.... etc.In response to your earlier question, the Interest costs are usually not included in the operational costs by all companies. These come after Operational Profit/Loss.Just my understanding. DYOR etc.
II Editor
14 Feb 2017
NEW ARTICLE: Rolls-Royce’s unwanted record "Some of the optimism around LSE:RR.:Rolls-Royce and the iconic engineer's slow recovery evaporated Tuesday, despite better-than-expected annual results. Currency hedging caused an eye-watering record £4.6 billion loss, and guidance was for only ..."[link]
Akis1999
14 Feb 2017
Re: Share price Great news! My wife was cooking and did not hear me properly! She gets it now the way I still do not get the 4 bn financing cost ?What are the "financing" costs which they have printed all over their statement? 1.3bn in 2014, 1.3bn in 2015 and now 4.3bn ? What is it ?
Akis1999
14 Feb 2017
Re: Share price So these guys at the top are as bad or worse than ... Tesco guys? BT guys? Pearson guys? I could go on.I was telling my wife a second ago "heads should roll at rolls"... you get it ? 
She gave me a blank look...
LK Hyman
14 Feb 2017
Re: Value Act Yee Wo,"I'm really intrigued as to what ValueAct's strategy is from here."I wonder if ValueAct know what the sam heck they're doing? From their photos they look like a bunch of chancers, albeit chancers who have managed to hire a cracking pair of ravers onto their team:[link] on the flybridge I bet RR wish they'd been given Allison instead of Bradley as a NED
Yee Wo
14 Feb 2017
Value Act Interesting to read RR's numbers this morning and the comments on this board and others. I'm really intrigued as to what ValueAct's strategy is from here. They cannot, presumably, want to hold a huge position in RR forever? What will their exit strategy be, with places on the RR board they presumably have faith in the longer term economics of the underlying business?RR is clearly no longer a HY investment, perhaps it may yet yield a decent capital gain?
numberbiter
14 Feb 2017
Re: Not so bad... Re derivatives, the problem the company was betting that the US dollar would weaken; instead it strengthened. I know from experience that you simply cannot guess which way currency will go so the sensible approach is to buy/sell an option at a fixed rate, so if there is a significant movement you can benefit. Over several years for a company I bought options rather than buying forward, which had been company policy. The first time I did it I made £1 million for my company; thereafter I broke even, in other words I took advantage where there were major movement in the £$ rate, but when there was not it worked out that doing nothing, buying forward or buying an option achieved roughly the same result.It is a pity that Rolls Royce have refused to make engines for Airbus's short haul aircraft. I cannot understand why they have opted out of a nice little earner.
Hardboy
14 Feb 2017
Re: Not so bad... "No need to belittle the 1% dividend"Quite so, but FY dividend = 11.7p. Current share price 708, yield =1.65%.
Hardboy
14 Feb 2017
Re: Share price Akiss: "Share Price - I wonder what it is hanging on"One thing is still forward visibility of earnings. With a backlog of £80b & a turnover of £15b - that's over 5 year's worth. A lot is maintenance contracts, but it still gives some good forward visibility and a nice underlying foundation to the business.
Hardboy
14 Feb 2017
Re: Order book "The closing order book for Civil Aerospace is 18 times as large as it is for Defence Aerospace and yet annual revenues for civils are only three times that of defence."Yes but Governments Military don't want outsiders poking around with their state of the art killing machines + the business of actually fighting a ward is becoming so automated that we don't need any front line troops, but Governments do like to have a lot of people in their forces (makes a man of you) so they've got to find them something to do - repair and maintenance engineers - just the ticket. Whereas Civil Airlines don't like employing non-essential personnel, so outsource whatever they can. Or to put it another way - the discrepancy does not surprise me.
axolotl
14 Feb 2017
Re: Not so bad... No need to belittle the 1% dividend ... it's more than what I get on any of my savings accounts
Doggedly persevering
14 Feb 2017
Re: Share price Interesting LKH.How are we to reconcile the continuing growth of exceptionals with the new management's previously stated aim of providing crystal like clarity in any future financial and operational numbers?Either they still have no meaningful numbers, or they do and thought they better get them hidden sharpish?
Frankers70
14 Feb 2017
Not so bad... Well, we knew 2016 had been a bad year so to revalue derivatives and push all of the bad news into one hit isn't such a bad thing and still at least pay a dividend, albeit 7p. It'll be interesting to see the analysts thoughts on RR now, as a focus on costs, a new strategy on delivering shareholder value in a changing and challenging environment, may rate the 720p share price cheap going forward. Let us hope so. As ever, GLA that are holding....
LK Hyman
14 Feb 2017
Order book Fascinating to compare the civil aerospace biznay with the defence aerospace biznay.The closing order book for the former is 18 times as large as it is for the latter and yet annual revenues for civils are only three times that of defence."So what, LK?" I hear you cry.Well, what that comparison tells me is that, even allowing for the greater economies of scale of the civil biznay, the pencilnecks in the MoD and the US DoD are utterly utterly useless at driving a hard bargain on buying engines for the military, compared to the rather better job that the airlines do when they buy their engines.Still, look on the bright side ... if one were an RR shareholder (which I ain't) one would be goin' down on bended knee in gratitude to them civil servants and prayin' for their incompetence to continue.LKH on the flybridge
