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New Rolls Royce boss facing uphill battle after profit miss

The incoming boss of FTSE 100 jet-engine maker Rolls Royce (GB:RR)  – former BP oil man Tufan Erginbilgic – faces a serious challenge when he takes over in January on a pay packet of nearly £9 million. 

Outgoing chief executive Warren East insisted the company’s recovery was on track yesterday, despite missing first-half profit expectations. 

Shares in Rolls Royce fell to 83.11p by close of trading yesterday, after the company missed profitability forecasts. Rolls Royce made an underlying loss of £111m before tax in the first half of 2022, compared to £133m profit in the previous year. 

Post-COVID troubles

Since the start of 2022, shares in Rolls Royce have fallen more than 35%.

Erginbilgic’s appointment was negotiated with senior Cabinet Office civil servants and will be cleared by the Ministry of Defence. Because of the company’s role in building nuclear submarine reactors, the Government holds a ‘golden share’ in the company, and at least one of the company’s chair or chief executive has to be a Briton. 

The company’s current chair, Anita Frew from Glasgow, is British

The company has been hard hit by COVID lockdowns around the world, with lockdowns in China being the ‘key retardant for the Rolls-Royce fleet of engines’, East said. 

Problems hiring engineers

East said that he was ‘very pleased’ with the company’s progress since the COVID pandemic, and hoped that he would leave the organisation as a leaner, agile organisation with a more modern culture’.

Rolls Royce has admitted that it is having problems hiring skilled engineers.

AJ Bell investment director Russ Mould said: ‘The incoming chief executive needs to find a more dramatic fix for a now rather broken business.’

View from the City

According to TipRanks’ analyst rating consensus, Rolls Royce stock has a Hold rating, based on two Buy, Five Hold and one Sell rating.

The average price target is 103.69p, which is 24.77% higher than the current price level. The stock has a high forecast of 143.96p and a low forecast of 70p.

Conclusion

The incoming boss is facing an uphill battle, with Rolls Royce struggling to bounce back after the pandemic. But the longer-term picture could be more attractive.

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