Financial Trading Blog
Stock of the day 04/02/2016 – Rolls-Royce Holdings PLC
Can the company inspire a 2016 turnaround with its full year figures next Friday?
From a 2015 peak of £10.59 last May Rolls-Royce managed to tumble all the way to a 5 and a half year low of £5.05 by the middle of November, a price it is perilously close to matching ahead of next week’s results. The reason? Well, profit warnings in July and November marked the company’s 4th and 5th since February 2014, a shocking run of form that arguably sees Rolls-Royce lucky not to be even lower.
(Source: IT-Finance.com 04/02/2016)
The most recent warning sent the stock from £6.65 to £5.11 (a near 19% drop) in the space of a day, its aforementioned low struck 48 hours later. The announcement saw CEO Warren East reveal that the company would incur £650 million in profit ‘headwinds’ during 2016, more than double the figure stated back in July.
Rolls-Royce managed to lift away from its 5 and a half year nadir as November came to a close, boosted by a ‘major restructuring’ plan outlined by East, a plan that aims to save £150-200 million a year. Yet just as the company crossed the £6 mark at the start of December the rocky trading at the end of 2015 dragged it back down again, with investors spooked by talk of a nationalisation contingency plan. Rolls managed one final boost before the year was out, news that the company was scrapping two divisions for a more streamlined model (now 5 smaller businesses all reporting to East) seeing the stock enter the New Year at £5.59.
Despite continuing to fall as 2016 got underway, Rolls-Royce pulled off an important bit of business at the start of February, a £1.9 billion deal with budget airline Norwegian that marks its biggest engine order in 12 months. Yet this hasn’t inspired the confidence East likely would have hoped for, leaving Rolls-Royce at a current trading price of £5.15 (IT-Finance.com, 04/02/2016).
In terms of its full year figures next Friday, the company is looking at profits between £1.325 billion and £1.475 billion for 2015.
Rolls-Royce Holdings PLC has a consensus rating of ‘Hold’ with an average target price of £6.21.
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