Proactive Investors - Rolls-Royce Holdings PLC (LSE:LON:RR.) could be lining up to deliver “a lot more” after working capital outflows appear to have been brought under control, analysts say.
Highlighting a boost to free cash flow on better working capital, Liberum noted this was “the big lever that had been missing from previous guidance” after the engine makers' interim results.
“[There is] potentially a lot more to come if ratios can be normalised,” analysts added.
Rolls-Royce reported a £228 million working capital outflow for the first half of the year, against £465 million a year earlier.
This aided a boost in free cash flow, the company said, which climbed from £356 million in the first half of 2023 to £1.2 billion this year.
The company also reported a 74% increase in underlying profit to £1.1 billion, with revenue climbing 18% to £8.2 billion.
Liberum highlighted that Rolls-Royce’s improvements were “implicitly internally generated,” given guidance on engine flight times, based on which the company is paid, were unchanged.
Rolls-Royce’s guidance for a £2.1 billion to £2.3 billion operating profit and £2.1 billion to £2.2 billion in free cash implies a similar second half to the year, Liberum added, leaving scope for “upside risk” in the months ahead.
‘Buy’ was the rating from Liberum, with Deutsche Bank (ETR:DBKGn) analysts echoing the call, noting improvements came in spite of ongoing supply chain challenges.