Big moves for Rolls-Royce and Centrica

Our stocks writer reports on two of Britain’s best-known companies as they see strong price gains.

Big share price gains at Rolls-Royce (LSE:RR.) and Centrica (LSE:CNA) have lightened the mood this week for investors with exposure to some of the UK's best-known and most widely held stocks.

The strongest turnaround has been at Rolls, where the shares have rallied 20% after a week in which the all-important outlook for engine flying hours has received a significant boost from authorities in the US and UK relaxing their restrictions on Covid travel.

British Gas owner Centrica is 8% higher as the ongoing crisis in the energy industry appears to play into its hands by removing smaller competitors.

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As well as mopping up some of the failed suppliers, chief executive Chris O'Shea boosted confidence this week by insisting the company is in a “robust financial position” and well hedged for the coming winter.

Rolls shares are now trading at their highest level since December and FTSE 250-listed Centrica the best since June, although for their long-term shareholders these landmarks are small consolation after hefty falls in valuations over recent years.

A number of other widely held stocks continue to struggle for momentum, most notably Lloyds Banking Group (LSE:LLOY) after losing another penny in the past week to stand at 44.2p.

The shares briefly touched 50p in June, but the slow progress towards margin-enhancing higher interest rates and the uncertain economic outlook continue to cloud a robust operational performance.

BT Group (LSE:BT.A) has also frustrated its army of small shareholders after falling back from above 200p in June to just below 160p today. The stock is up 2% in the past week, helped by speculation that streaming service DAZN is in advanced talks to buy BT's sports broadcast division.

Among other London-listed heavyweights, GlaxoSmithKline (LSE:GSK) is up 2% in the past week and 4% in the year to date after another activist investor bought shares. Prudential (LSE:PRU) is 4% lower in the past week after announcing plans to raise £2 billion from Hong Kong investors.

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One of the week's other big gainers has been International Airlines Group (LSE:IAG) as its shares rallied by almost fifth to 177p on the prospect of US borders soon re-opening to fully vaccinated travellers from UK and Europe. Shares have since fallen back to 170p and are still a long way short of the 215p seen in April.

The return of transatlantic travel from November offers a particular boost for Rolls, given that its engines power long-haul aircraft including Boeing's 777 and Dreamliner.

UBS reported this week that chief executive Warren East believes the impact of the US move will be gradual, with a more tempered increase in flights until the 2022 summer season.

The Swiss bank added: “The CEO noted that A350s/wide body planes had been flying more intensively in Asia for short haul journeys but now the stage length and passenger load need to improve to drive the parked fleet down.”

Rolls got through £4.2 billion of cash in 2020 after engine flying hours in the civil aerospace division slumped to 43% of 2019 levels.

The recovery has taken longer than expected but Rolls said last month that it expects to be back generating cash before the end of the year, aided by a £1.3 billion restructuring plan costing 9,000 jobs.

Stock market confidence continues to show signs of improvement, with shares today up 3% or 3.5p to 125.66p and analysts at Berenberg increasing their price target by 10p to 160p.