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Rolls-Royce poised for strong profit rebound in second half

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Rolls-Royce on track for significantly improved operating profits.

Rolls-RoyceSource: Bloomberg

Written by: Chris Beauchamp | Chief Market Analyst, London
Publication date: 

Rolls-Royce on track for significantly improved operating profits.

British engine maker Rolls-Royce is on track to deliver significantly improved operating profits in the second half of 2022, according to forecasts.

The company's major business units are all expected to contribute to the better performance, led by a recovery in commercial aerospace and defence work.

Rolls-Royce's operating profit for the second half of the year will likely come in around £830 million, a major increase from £527 million in the second half of 2021. The gains are being driven primarily by the company's civil aviation segment, where wide-body flying activity has rebounded robustly.

Within civil aviation, Rolls-Royce is forecasting original equipment revenue to climb approximately 7% to £1.4 billion in the second half. More importantly, higher-margin aftermarket service revenue is projected to jump 16% to £2.4 billion. The company is also benefiting from increased business jet engine deliveries.

The defence unit is poised to see its operating profit hit £298 million, as military spending ramps up in Europe and the Middle East amid the conflict in Ukraine. Rolls-Royce is well-positioned to capitalise on demand for defence services, which offer superior margins.

Meanwhile, the power systems division is likely to post a 31% increase in operating profit to £213 million. Growth is expected to be powered by strong gains in aftermarket activity.

Across its major business units, Rolls-Royce is demonstrating an ability to translate increased demand, particularly for high-value aftermarket work, into significantly better profitability. The second half rebound solidifies a recovery story for the company after a turbulent period marked by the pandemic's impact on commercial aerospace.

With its outlook brightening, Rolls-Royce appears on course to continue rebuilding its balance sheet and financial performance. Investors are likely to cheer the better-than-expected profits as a sign of the company's progress in executing its turnaround strategy.

Analyst ratings for Rolls Royce

Refinitiv data shows a consensus analyst rating of ‘buy’ for Rolls Royce with 4 strong buy, 10 buy, 4 hold and 1 sell – and a mean of estimates suggesting a long-term price target of 357.35 pence for the share, roughly 8% higher than the current price (as of 19 February 2024).

Rolls Royve analystSource: Refinitiv

Technical analysis of the Rolls Royce share price

Rolls Royce’s share price remains on track for its August 2018 peak at 379.0p, judging by the swift near 385% ascent it has seen from its October 2022 low.

The British multinational aerospace and defence company’s share price is now grappling with its August 1997 and February 2019 peaks at 341.3p to 344.4p which may short-term, act as resistance.

Rolls Royce Monthly Candlestick Chart

Rolls Royce Monthly CandlestickSource: TradingView

On the daily chart the Rolls Royce share price, which has risen by more than 10% year-to-date, continues to break through resistance and thus advance.

Rolls Royce Daily Candlestick Chart

Rolls Royce Daily CanldestickSource: TradingView

Monday’s rise above the 8 February high at 325.7p is another stepping stone towards the August 2018 high at 379.0p.

While the October-to-February uptrend line at 306.3p underpins, the medium-term uptrend will remain intact.

For long-term bullish momentum to be maintained, the Rolls Royce share price should ideally remain above its mid-December low at 287.3p.



This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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