Proactive Investors - Another broker has joined in the throng expecting Rolls-Royce Holdings PLC (LON:RR) half-year results to be a bit of a damp squib.
Barclays (LON:BARC) said investors will have to wait until December for the big news on turnaround activities from the engine maker, including disposals, long-term service agreement (LTSA) negotiations, decisions on its lossmaking engine model, future R&D spend and other restructuring.
Shares in Rolls were the best performing in the FTSE 100 in the first half of the year, which Barclays pointed out was closely correlated to the recovery in engine flying hours, as the company is paid based on the number of hours flown by its engines.
Flying hours for widebody aircraft averaged 83% of 2019 levels in the first four months of the year, with monthly sequential improvement and a higher exit rate in April, the Barclays analysts noted.
“The ~70% correlation to share price is likely to de-couple throughout the year as WB flight hours return to/above pre-pandemic levels in 2024, and the market starts to focus more on self-help,” they wrote in a note to clients on Thursday.
Based on its engine-tracker data, Barclays forecasts “significant recovery upside” in the second half of 2023, boosted by international China travel, for 92% of 2019 levels for the year, which is above company guidance of 80%-90%.
First-half estimates, however, are “subdued”, with Rolls expected to deliver revenue of £5.7bn, underlying earnings (EBIT) of £326mln and underlying earning per share of 0.5p. A potential risk for a second-half recovery is the persistence of industry supply chain issues.
The Barclays note comes hot on the heels of UBS cautioning investors that the interim results could provide disappointing numbers, with management needing to be cautious on its future guidance as its investment case relies on "regaining trust", while JPMorgan (NYSE:JPM) said new chief executive Tufan Erginbilgic’s ambitious outlook is admirable but agreed that he needs to prove himself and set “credible” targets that can be “supported by realistic buildings blocks”.