Shares round-up: brakes on at Rolls-Royce, Auto Trader in reverse

High expectations after two years of upgraded guidance today counted against Rolls-Royce Holdings (LSE:RR.) as its shares joined Auto Trader Group (LSE:AUTO) among the biggest fallers in the FTSE 100 index.

The engines giant fell 19.2p to 554.8p, although with shares still 85% higher in 2024 it remains in the running to retain its crown as the year’s best-performing blue chip stock.

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Disappointment over the recovery of engine flying hours caused today’s reverse, given that October’s position at 102% of 2019 levels is the bottom end of 100-110% guidance.

The performance appeared to be the one downside of today’s trading update as Rolls reiterated the headline profit and cash flow forecasts it gave in August’s beat-and-raise interim results, when shares topped 500p for the first time.

Chief executive Tufan Erginbilgic said today: “Our transformation of Rolls-Royce into a high-performing, competitive, resilient and growing business continues with pace and intensity.”

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He also reported good progress towards medium-term targets, but with more still to do as he looks to expand the company’s earnings and cash potential.

The turnaround has led to the restoration of investment grade credit ratings, meaning Rolls is able to declare a dividend with annual results on 27 February. It intends to make a payout equivalent to 30% of post-tax underlying profit.

Erginbilgic has kept the company’s recovery on course despite significant supply chain headwinds across the aerospace industry. It has concentrated on 15 suppliers, “where our interventions have driven performance improvements”.

At Auto Trader, shares today gave up some of their strong gains for this year after the car retail platform highlighted some short-term headwinds in its half-year results.

The figures came in slightly ahead of expectations, with 8% growth in revenues to £302.5 million and 11% rise in earnings per share to 15.56p. The interim dividend has been lifted to 3.5p a share, up from 3.2p the year before.

However, shares fell 68.8p to 774.6p as the company expects current-year average revenue per retailer (ARPR) to be diluted by the growth in lower-yielding smaller retailers. Constrained supply conditions also mean cars also being advertised for shorter periods of time.

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Panmure Liberum trimmed its revenue forecast by £6 million following the results, while its price target fell by 10p to 860p.

Bank of America remains at 1,000p, pointing out that the shares trade on a “still appealing” multiple of 22 times forecast free cash flow compared with peers on 26 times.

Despite the near-term headwinds, the bank continues to see strong earnings momentum on the back of Auto Trader’s solid competitive positioning and expanded offering. It pointed to the recent launch of Co-Driver, a new suite of AI-powered tools designed to improve the automotive experience for consumers and retailers.

It follows the rollout of Deal Builder, which allows car buyers to secure their vehicle on Auto Trader and to complete more of the buying journey online.

Chief executive Nathan Coe added today: “We are confident in the outlook for the business given our strong market position, and the opportunity to use our unique data, technology and AI capabilities to improve the way vehicles are retailed in the UK.”

Auto Trader also said it did not believe its products will be directly impacted by the recent Court of Appeal judgment against certain automotive finance lenders.