So what about pointing out some of the good news then.
A significant holding in the portfolio, Rolls-Royce, has had a turbulent 9 months or so since the Quantas A380 incident and it shares have run an equally rocky course with the addition of the JSF budget cuts.
However, June begins what is generally a positive PR period for the company driven by the industry love-in that is the Paris Air Show.
The diary of press releases has been pretty full for the last 10 days so lets lists them straight off the Rolls-Royce site:
15th June - Rolls-Royce wins offshore supply vessel order in Brazil - "£15m order to design and equip 2 offshore vessels for ship owner Brasil Supply."
16th June - Rolls-Royce secures offshore orders worth over £100 million - £100m order "to supply propulsion systems for offshore construction and drilling vessels."
19th June - Rolls-Royce to power enhanced Airbus A350-1000 - "Rolls-Royce, the global power systems company, has signed an agreement to be the exclusive engine provider for an enhanced version of the Airbus A350-1000 aircraft."
"Currently six Trent XWB engines are being tested and are delivering better than targeted results. Flight testing of Trent XWB engines is scheduled to begin later this year."
"More than 1,100 Trent XWB engines have been ordered by 36 customers making it the fastest selling member of the Rolls-Royce Trent engine family. The higher thrust variant of the Trent XWB is scheduled to run for the first time in mid-2014 and enter service in mid-2017."
20th June - Rolls-Royce completes $2.2 billion Trent order with TAM Airlines - Rolls-Royce "has concluded a contract worth up to $2.2 billion at engine list prices, with TAM Airlines of Brazil, to provide Trent XWB engines for Airbus A350-XWB aircraft. The order includes a 12 year agreement for TotalCare® long-term services support."
"This is the first time TAM has ordered engines from Rolls-Royce and follows a previous announcement of the aircraft order made by Airbus. TAM has placed an order for 27 A350-XWBs."
20th June - Rolls-Royce share of Gulf Air V2500 order worth $60 million - Rolls-Royce "has won a share of an order from Gulf Air for V2500 SelectTwo engines to power six Airbus A321 aircraft. The order is worth over $60 million to Rolls-Royce.
21st June - Rolls-Royce reaches $360 million agreement with Etihad Airways - Rolls-Royce "has reached an agreement with Etihad Airways, the national airline of the United Arab Emirates, to provide long-term engine services and performance enhancement kits worth a total of $360 million."
"The Abu Dhabi-based airline will receive TotalCare® services for Trent 700 engines that power four Airbus A330 aircraft. It will also extend an existing contract covering the same engines that power 20 more of its A330 fleet."
"In addition, the airline will introduce Enhanced Performance (EP) kits on 30 of its Trent 700s, which will increase their fuel efficiency by more than one per cent per engine and reduce CO2 emissions by 800 tonnes per aircraft per year."
22nd June - Rolls-Royce and Lockheed Martin sign engine fuel efficiency agreement - Rolls-Royce "has signed a memorandum of agreement with Lockheed Martin Corp. to provide performance improvements, including better fuel efficiency, to the T56 family of engines. The agreement builds on a partnership of over 50 years and demonstrates long-term commitments from both companies to enhance safety, economy, reliability and performance of Lockheed Martin aircraft "
22nd June - Rolls-Royce Trent 1000 approved by Japanese aviation authority - Rolls-Royce "has received certification from Japan’s aviation authority for its Trent 1000 engine, confirming its readiness to power the Boeing 787 Dreamliner’s entry into service with All Nippon Airways (ANA).
A Certificate of Type Approval has been granted by the Japanese Civil Aviation Bureau (JCAB), the first granted for an engine powering the 787 Dreamliner.
Last month Rolls-Royce announced the Trent 1000 had been granted Extended Twin Engine Operations (ETOPS) approval by the Federal Aviation Authority (FAA), again a first for an engine operating on the 787.
Flight tests to support ETOPS approval of the engine/aircraft combination are now taking place and engines have been delivered for the first ANA 787 Dreamliner to go into passenger service."
23rd June - Rolls-Royce demonstrates technology leadership in Paris - "World-leading technology developed by Rolls-Royce, the global power systems company, was one of the highlights of this week’s Paris Airshow, where the Group launched the latest member of the Trent family and won significant new orders.
Rolls-Royce confirmed development of an enhanced Trent XWB engine, capable of delivering 97,000lbs of thrust, for the enhanced Airbus A350-1000, while also securing orders of $2.9 billion from customers in South America, the Middle East and Asia."
24th June - http://www.rolls-royce.com/investors/news/2011/110624_tognum_support.jsp - the Rolls-Royce / Daimler joint bid for Tognum has successfully secured 94% of the shares.
So a seeming avalanche of good news with a further touch added by the announcement that the company has also settled its potential legal dispute with Quantas at a cost of £62.5m as reported by the www.independent.co.uk.
However, the share price has run a roller coaster this year since the highs of 665p achieved in January. Since then it has pulled back to 570p, recovered to 650p and then fallen back again to 590p from where it looks to be on another recovery track with a 19p gain on Friday.
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| Rolls-Royce share price performance (chart courtesy of Digitallook) |
Obviously, the tide that the share price is fighting might not be entirely of the company's own making (sovereign default and US slowdown) so might be reasonably argued that, JSF concerns aside, the company might not be at a valuation that matches it prospects.
The company is effectively debt free, has one of the worlds most recogniseable brands and is one of the top two companies in an industry with huge barriers to entry (investment, technology, and capability).
It has also successfully executed a strategy which has given it a broad customer base across a number of sectors "comprising more than 500 airlines, 4,000 corporate and utility aircraft and helicopter operators, 160 armed forces, more than 2,500 marine customers, including 70 navies, and energy customers in nearly 120 countries, with an installed base of 54,000 gas turbines." (Rolls-Royce).
Almost 50% of revenues no come from the aftermarket support of this installed base.
The share price is once again ploughing similar levels to those seen when the A380 engine failure hit the news. Is that a fair assessment of the company's medium and longer terms prospects?
At 31 December "The firm and announced order book stood at £59.2 billion", which is around 6 years work. Take note of the date though as a further $2.2bn was added to this from Paris alone.
It is one of two engine choices on the Boeing 787 and currently, the sole engine choice on the Airbus A350.
The engine for the A350 (2 per aircraft), "The Trent XWB is the most advanced civil turbo fan engine in the world and the fastest selling Trent ever. Orders are in place for 574 aircraft, from 36 customers."
The share price is once again ploughing similar levels to those seen when the A380 engine failure hit the news. Is that a fair assessment of the company's medium and longer terms prospects?
At current levels the share price is on a forecast P/E of 13.7 falling to 12.2 in 2012 on earnings growth of 14% and 12%.
Given the size and visibility of the order books, the nature of the aerospace cycle, and the near certainty of revenues from its installed engine base, I see R-R being a core holding of the portfolio for some time to come.
It has a dividend yield in the region of 3% and, if projections to 2012 (and company guidance) are correct then the dividend will have doubled in 6 years which I see as quite a decent performance.
In the current 12 month horizon, I can still see the company regaining its premium rating and achieving new highs in the region of 700p.
Be lucky!
Rolls-Royce Press Release links:
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