Rolls-Royce Stock Analysis
โ๏ธ Rolls Royce is the ๐จ๐๐๐ค๐ฃ๐ ๐ก๐๐ง๐๐๐จ๐ฉ ๐๐๐ง๐๐ง๐๐๐ฉ ๐๐ฃ๐๐๐ฃ๐ ๐ข๐๐ฃ๐ช๐๐๐๐ฉ๐ช๐ง๐๐ง ๐๐ฃ ๐ฉ๐๐ ๐ฌ๐ค๐ง๐ก๐ 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.
๐ฆ 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.
โ๏ธ ๐ฝ๐ช๐จ๐๐ฃ๐๐จ๐จ ๐ฟ๐๐จ๐๐ง๐๐ฅ๐ฉ๐๐ค๐ฃ:
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.
๐ ๐ฟ๐๐๐๐ฃ๐๐ is a safer and more stable business, so is power system but the real growth engine of this business is civil aviation.
๐ต๐๐๐ฃ๐๐ฃ๐๐๐๐ก ๐ผ๐ฃ๐๐ก๐ฎ๐จ๐๐จ:
โข Revenues of GBP 11.8 Billion in FY20 down from GBP 16.5 Billion in FY19
โข Operating loss of GBP 2.27 Billion in FY20 vs loss of GBP 956 million for
FY19
โข Net loss of GBP 3.17 Billion in FY20 vs net loss of GBP 1.31 Billion for FY19
โข Negative Free Cash Outflow of GBP 4.2 Billion in FY20 vs FCF GBP 873
million for FY19
โข Total assets: GBP 29.5 Billion ; total liabilities: GBP 34.4 Billion; book value:
Negative GBP 4.9 Billion
โข Cash: GBP 3.3 Billion, debts: GBP 4.2 Billion, current assets: GBP 14.6
Billion, current liabilities: GBP 13.9 Billion
โข 6.3 Billion shares outstanding vs 5.9 Billion in FY19
โข GBP 2.0 Billion may be raised by issuing new shares
๐ฐ๐๐๐ก๐ช๐๐ฉ๐๐ค๐ฃ ๐๐ฃ๐ ๐พ๐ค๐ฃ๐๐ก๐ช๐จ๐๐ค๐ฃ:
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:
https://www.youtube.com/watch?v=nX0tZR7ALKw&list=UUPO3uUyoXSaFWG-Ldq1mqEQ&index=1
Full analysis of Rolls Royce:
https://ishfaaqpeerally.teachable.com/courses/662813/lectures/31413477
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