Is Rolls-Royce recovery from pandemic starting to gather momentum?

EXPERTS DISCUSS PROSPECTS AS THE COMPANY’S SHARE PRICE RISES

BUSINESS investment experts have been sharing their view on Derby’s biggest company Rolls-Royce as its share price took a positive turn.

The Motley Fool, which aims to provide information and analysis for investors, has been discussing RollsRoyce shares which are now at 112.42p at the time of writing, compared to just 87p at its lowest point in July.

It adds: “The Rolls-Royce pandemic recovery seems to be taking flight. The 2021 half-year results backed up this view.

“The company is still operating with a negative cash flow, but the figure has been reduced by over £1.5bn compared to 2020 H1. These metrics give me confidence that the RollsRoyce share price can continue to pick up.”

It comes as the company says it has returned to profit for the first half of 2021, as it released its latest financial results.

The engineering firm has its aerospace headquarters in Sinfin and builds nuclear reactors for submarines off Raynesway, employing thousands of people in the city.

It made £393 million in profit for the first half of the year, a marked improvement from mammoth losses of £5.4 billion for the same period last year which were brought on by the Covid pandemic.

The company says while the return to profit, which was brought on by cost-cutting measures, is a good thing, it adds it does not expect the aviation industry to return to normal until after 2022.

The industry has been hit particularly badly during the Covid pandemic, as countries across the world imposed travel restrictions to stop the spread of the virus, hitting aviation firms hard.

Rolls-Royce says it is expecting international travel to bounce back once these border restrictions are lifted, but warned the recovery would take longer than first forecast.

The Motley Fool adds in its analysis: “The business has also emerged from the pandemic as a much more streamlined entity.

“The firm was forced to cut 7,000 jobs in 2020 due to a $4 billion crippling loss. A further 2,000 jobs were announced to be cut in 2021 and Rolls said this process is now 90% complete.

“These cuts should help strengthen the firm’s liquidity position and rebuild the balance sheet, with it targeting £2 billion free cash flow for the year.

“Good news aside, there are still risks moving forward for Rolls. One risk I am aware of is the rising threat of inflation.

“The Bank of England has warned that inflation may creep to 4% as the economy fully reopens and people begin spending normally again.

“If this is the case, it opens the door to increasing interest rates. This is very bad news for a company that currently has £4 billion debt.”