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  • Writer's pictureIshfaaq Peerally

Rolls-Royce Stock Analysis

✈️ Rolls Royce is the 𝙨𝙚𝙘𝙤𝙣𝙙 𝙡𝙖𝙧𝙜𝙚𝙨𝙩 𝙖𝙞𝙧𝙘𝙧𝙖𝙛𝙩 𝙚𝙣𝙜𝙞𝙣𝙚 𝙢𝙖𝙣𝙪𝙛𝙖𝙘𝙩𝙪𝙧𝙚𝙧 𝙞𝙣 𝙩𝙝𝙚 𝙬𝙤𝙧𝙡𝙙 after GE Aviation $GE . The company focuses mostly on widebody aircraft with Airbus $AIR.PA being their largest customer ahead of Boeing $BA . Rolls-Royce is also a defence contractor and manufactures power systems both for civilian and military applications.

🦠 Rolls-Royce $RR.L is down more than 70% from all time high. The airline and aerospace industries have been hit by this pandemic but when we look at Rolls-Royce, we will see that the problems started since 2015. There were uncertainties around Brexit since their largest customer is Airbus. They have big pension liabilities. They took more debt and diluted their shares. The market didn't like it. The pandemic made things worse as the demand for new planes is now very low.

✈️ 𝘽𝙪𝙨𝙞𝙣𝙚𝙨𝙨 𝘿𝙚𝙨𝙘𝙧𝙞𝙥𝙩𝙞𝙤𝙣:

Rolls Royce has 3 main business segments: Civil aerospace, power systems and defence.

Civil Aerospace business accounted for 51% of revenues in FY19 and 41% in FY20. The Industry was hit by Pandemic in 2020, causing a 37% drop in revenues in Civil Aerospace business segment. Rolls Royce has 55% of market share of widebody order book as of 2019 with 43% of market share in 0-10 years old widebody and 12% in 20-30 years widebody. Typical widebody retirement window is 25 years. Therefore, we can say that for the long-term, the market is here for Rolls Royce but right now, airlines are not really in the position to buy new planes.

🚀 𝘿𝙚𝙛𝙚𝙣𝙘𝙚 is a safer and more stable business, so is power system but the real growth engine of this business is civil aviation.

💵𝙁𝙞𝙣𝙖𝙣𝙘𝙞𝙖𝙡 𝘼𝙣𝙖𝙡𝙮𝙨𝙞𝙨:

• Revenues of GBP 11.8 Billion in FY20 down from GBP 16.5 Billion in FY19

• Operating loss of GBP 2.27 Billion in FY20 vs loss of GBP 956 million for


• Net loss of GBP 3.17 Billion in FY20 vs net loss of GBP 1.31 Billion for FY19

• Negative Free Cash Outflow of GBP 4.2 Billion in FY20 vs FCF GBP 873

million for FY19

• Total assets: GBP 29.5 Billion ; total liabilities: GBP 34.4 Billion; book value:

Negative GBP 4.9 Billion

• Cash: GBP 3.3 Billion, debts: GBP 4.2 Billion, current assets: GBP 14.6

Billion, current liabilities: GBP 13.9 Billion

• 6.3 Billion shares outstanding vs 5.9 Billion in FY19

• GBP 2.0 Billion may be raised by issuing new shares

💰𝙑𝙖𝙡𝙪𝙖𝙩𝙞𝙤𝙣 𝙖𝙣𝙙 𝘾𝙤𝙣𝙘𝙡𝙪𝙨𝙞𝙤𝙣:

My analysis shows that the company is overvalued since we need a big margin of safety to account for all the uncertainties surrounding the airline and civil aerospace industries during this recovery from the pandemic.

Watch the full video on YouTube:

Full analysis of Rolls Royce:


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