The Sunday Telegraph reports that the Defence Secretary, Philip Hammond, looks set to unveil news of a deal for a new class of submarines which would replace the current Trident armed Vanguard fleet, and the Astute class of "Attack submarines" (http://www.telegraph.co.uk: £1 billion deal paves the way for Trident nuclear deterrent replacement).
This will begin with a £1bn order for nuclear reactors on Rolls-Royce's Raynesway plant in Derby.
Reports also suggest that this will involve the MoD funding an 11 year refit of the plant creating 300 jobs at the plant and more in the extended supply chain.
"This is sustaining a sovereign capability in the UK and some very high-end technical skills in the UK for the next 40 or 50 years.
"The government's policy is very clear. We're committed to maintaining a credible nuclear deterrent and we're placing orders now... for the long-lead items that will be necessary to deliver a successor to the Vanguard Class submarines in the late 2020s.
"But the decision on whether to build them won't be taken until 2016 - what we're doing now is ordering the things we have to order now to give us that option." (http://www.telegraph.co.uk: Philip Hammond unveils £1bn deal to pave way for Trident replacement)
A major milestone in 2016 then, where the go / no go decision on actually building the submarines ahead of a late 2020 introduction, would initially be planned in to take place.
Good news for Rolls-Royce though (if the order is placed), as it adds to the order book, and potentially extends out for years to come.
A significant proportion of my portfolio is invested in Rolls-Royce and, as I have touched on many times, I see strengths in the cashflows that result from servicing long life-cycle end markets.
This can often involve sizable upfront R & D investment but can yield an income for years to come, whilst the upfront investment and technical capability provides a significant barrier to entry (or economic moat as Buffett would term it), that guards against competitive threat.
This can often involve sizable upfront R & D investment but can yield an income for years to come, whilst the upfront investment and technical capability provides a significant barrier to entry (or economic moat as Buffett would term it), that guards against competitive threat.
The company has also come a long way from the inventory heavy balance sheets that marked its privatisation in 1987, and resulted in cash being tied up in inventory.
From an investment point of view, and since the portfolio's starting point of 31 Dec 2009, Rolls-Royce is up some 70.73% with a further dividend gain of 8.81%, so that's 79.64% of gains in total as at 31 May 2012 (May 2012 Update.).
Still riding on the back of Trent powered growth, the company is a cash cow in the making, and looks set to be a staple of the portfolio for years to come.
Related article links:
- http://www.telegraph.co.uk: £1 billion deal paves the way for Trident nuclear deterrent replacement
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