Rolls-Royce @ 770p, -15p (-1.91%).
So Rolls-Royce reported full year results today which seemed to disappoint markets despite:
- a record £1.157bn profit before tax, up 21% on the previous year and the first time the company has broken through the £1bn milestone.
- revenues of £11.277bn (2010: £10.866bn), up 4% on the previous year.
- Order book increased by 5% to a record £62.201bn
Behind this:
- after market revenues increased by 9% but new equipment sales fell by 1%.
- Margins increased slightly to 9.62% (9.35%)
- Dividend cover of 2.77 times (2.42 times)
- Dividend increase of 9% to the full year bringing the total payment to 17.5p
Investment has had an effect on these results with:
- an impact on Energy division profits following investment in Civil nuclear
- the £1.5bn acquisition of Tognum (with Daimler), which has had a visible effect on reduced cash balances but the company remains well on top of debt and retains a net cash position of £223m. Interestingly Tognum also made a contribution to profits of £30m
- Actual cash balance is £1.31bn (2010: £2.859bn), down a remarkably transparent £1.549bn (Tognum acquisition).
Looking forward, both Airbus and Boeing are delivering 787's and A380's thereby bringing in revenues from 2 recent development programs.
The proposed sale of the company's 32.5% stake in IAE is still on track to be divested in the first half of 2012.
2012 will also see the BR725 enter service on the Gulfstream G650.
Tognum will begin to make a contribution to revenues and profits with Daimlers 50% reported as a non-controlling interest.
2012 Summarised by division:
- Civil - good growth is expected in Civil revenues with greater growth in profits.
- Defence - modest growth in both revenues and profits
- Marine - modest increase in revenues but flat profits
- Energy - improvements in revenues and growth
Rolls-Royce is the largest holding in my portfolio and has performed handsomely, if erratically, over the last 12 months.
And, even though I had begun to view them as a little frothy on historical valuations I must confess to being a little disappointed at them falling today.
The company announced a profit increase of 21% (despite recent well publicised problems in the Aerospace market: 787 delays; T900 oil leak), has an order book which broadly covers 6 years work (£62bn / £11bn = 5.64), a net cash position (even after it paid cash for Tognum), and occupies the number 2 position in a 3 company sector with huge barriers to entry covering regulatory, technological, capability, and credibility.
Rolls-Royce wasn't in my consideration when writing the previous post (Markets, Company Reporting and Analysts Expectations: Contradiction and Confusion.) but perhaps they are another example of a company increasing profits but having disappointing sales growth that drags the shares down.
At their lowest point today the share price was 750p, -35p (-4.46%).
At their lowest point today the share price was 750p, -35p (-4.46%).
This is a long term company though with a long term vision, long term investment horizons, and long term rewards.
Increasing service revenues are a direct result of products in the field with 20 and 30 year life horizons which themselves are the result of multi-year research and development programs.
The number and size of the company's installed engine base (approx. 54,000 gas turbines) is also the direct result of a 15 year strategy to compete on every new air frame (and apply its technology across applicable industrial sectors like marine and energy) with a portfolio of products that, in the case of the successful Trent family and derivatives, can trace their lineage back to the first 3 shaft engine, the RB211, which entered service in 1972 on the Lockheed Tristar.
The company is maximising its technological success, particularly in gas turbines, and looks set to for many more years to come.
It is something that I have mentioned a number of times in posts but I like the long term cycles and horizons of Aerospace and they serve to educate and help me step back from the short term misdirection of markets.
Dividends have increased annually since 2004 despite the burdens of R & D and global recessions in what has traditionally been a capital intensive industry.
The current year's increase in profits also serves to bring the historic Price to Earnings down to a more amenable 15.86 times and with consensus forecasts currently looking for a 14% increase in earnings, the forward PE is a reasonably attractive 13.9 times.
13% growth in earnings for 2013 brings the PE down to 12.3.
It may be my biggest holding but the shares are still very much a hold for my portfolio though and I can see 825p as the next milestone with the potential to hit 880p by the time the results come out next year.
Related articles:
Related posts:
- Rolls-Royce 2010 Final Results
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