ii view: Rolls-Royce shares maintain altitude near record high

Full-year results to 31 December

• Revenue up 16% to £17.85 billion
• Pre-tax profit up 82% to £2.29 billion
• Adjusted operating profit up 51% to £2.5 billion
• 2024 dividend of 6p per share
• Net cash held of £475 million, up from net debt of £1.95 billion

Guidance:

• New £1 billion share buyback
• Expects full-year 2025 operating profit of £2.7 billion and £2.9 billion
• Expects mid-term operating profit of between £3.6 billion and £3.9 billion

Chief executive Tufan Erginbilgic said: 

"Strong 2024 results build on our progress last year, as we transform Rolls-Royce into a high-performing, competitive, resilient, and growing business. All core divisions delivered significantly improved performance, despite a supply chain environment that remains challenging.

“Significantly improved performance and a stronger balance sheet gives us confidence to reinstate shareholder dividends and announce a £1 billion share buyback in 2025.”

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ii round-up:

Rolls-Royce Holdings (LSE:RR.) operates across the three core divisions of civil aerospace, defence, and power systems. 

The FTSE 100 company has customers in more than 150 countries. They include over 250 commercial large aero engine customers, 160 armed forces and navies and approximately 40,000 active Power Systems customers such as boat builders, industrial manufacturers, utility providers and data centre operators. 

For a round-up of these latest results announced on 27 February, please click here. 

ii view:

Started in 1906, Rolls-Royce today employs over 40,000 people. Civil Aerospace generated its biggest slice of revenues in 2024 at 51%, followed by Defence at 25%, and Power Systems most of the 24% balance. Rolls also operates a small New Markets division, focused on opportunities for the transition to net zero such as developing small low-cost nuclear reactors and hydrogen powered engines. Geographically, the USA accounts for most sales at 29%, followed by the UK at 14%, China 7%, Germany 6%, and many other countries the balance of 44%.   

For investors, supply chain disruption, as previously flagged by aircraft maker Airbus SE (EURONEXT:AIR), continues to disrupt performance. Global geopolitical tensions in the Middle East and Ukraine could still escalate, potentially disrupting the group’s airline customers. A forecast dividend yield of 1% is less than the 2%-plus yields on offer at defence rivals BAE Systems (LSE:BA.) and Chemring Group (LSE:CHG, while costs generally for businesses are now elevated.  

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More favourably, a recovery in civil aerospace following the pandemic now combines with increased demand for defence provision given raised geopolitical tensions. An emphasis on expanding the provision of power to the growing number of data centres is being made at its Power Systems division. Cost savings of £500 million are now expected to be made in 2025 ahead of a previous £400 million estimate by 2027, while expanding cashflows now underpin both a move into net cash held as well as a new £1 billion share buyback programme over the year ahead. 

For now, a price near the consensus analyst fair value estimate of 798p following a significant rerating may suggest the shares  are up with events. That said, new European government demand for defence requirements and expected growth in power provision broadly, still provide grounds for more hope over the long term.

Positives: 

• Investing in climate change related product innovation
• Holding net cash

Negatives:

• Uncertain geopolitical outlook
• Supply chain challenges

The average rating of stock market analysts:

Buy