Rolls-Royce Holdings PLC (GB:RR) delivered solid profits in its half-yearly earnings yesterday, driven by more engine flying hours. Large engine flying hours surged by 36%, reaching 6.2 million hours. Overall, the revival of the airline industry and a successful turnaround plan helped it deliver higher numbers.
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The investors cheered the results, and the stock gained 3.85% on Thursday. Last week, the stock went up by 19% in one day after the company raised its full-year earnings outlook to a range of £1.2 billion to £1.4 billion. This surpassed the previous guidance of £800 million to £1 billion. Overall, the stock has experienced a growth of almost 25% in trading in the last month.
Rolls-Royce is a manufacturing company that designs engines and power systems for the aerospace and defense sectors. Based in London, the company operates across regions spanning the U.S., Asia, Europe, the Middle East, and Africa.
Rolls-Royce First-Half Results
The group reported first-half underlying operating profits of £673 million, marking a significant increase of more than five times compared to the £125 million in the year earlier. The company also made a significant turnaround, moving from losses of £111 million in 2022 to pre-tax profits of £524 million in this set of results.
The company witnessed a major recovery in its Civil Aerospace business driven by higher flying hours, which in turn led to more demand for engine maintenance. Large-engine flying hours have reached an impressive 83% of pre-pandemic levels. This provides a clear indication of the business’s recovery.
The operating margin of Civil Aerospace improved significantly to 12.4%, compared to a negative 3.4% in the previous period. This was a result of improved aftermarket profitability coupled with better cost control. The Group’s underlying operating margin stood at 9.7%, a notable increase from 2.4%.
The free cash flow amounted to £356 million, a huge improvement compared to the outflow of £68 million in the prior period. For 2023, the company has provided cash flow guidance of £0.9 to £1.0 billion.
Analysts’ Opinion
Overall, analysts are impressed with the numbers and view it as a growing business, with further progress expected from its transformation program. Investors and analysts are eagerly anticipating the medium-term financial targets, set to be revealed at an investor day scheduled for November 2023.
Yesterday, UBS analyst Ian Douglas confirmed his Buy rating at a price target of 200p, which is 4.3% higher than the current trading levels.
On the contrary, David Perry from J.P. Morgan reiterated his Sell rating on the stock, predicting more than 50% downside in the share price.
What is the Future of Rolls-Royce’s Share Price?
According to TipRanks, RR stock has a Moderate Buy rating based on five Buy, four Hold, and one Sell recommendations.
The average target price of 177.63p is 7.3% lower than the current trading level.
