Rolls-Royce Holdings PLC
LSE:RR
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Intrinsic Value
The intrinsic value of one RR stock under the Base Case scenario is 385.34 GBX. Compared to the current market price of 537.2 GBX, Rolls-Royce Holdings PLC is Overvalued by 28%.
The Intrinsic Value is calculated as the average of DCF and Relative values:
Valuation Backtest
Rolls-Royce Holdings PLC
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Fundamental Analysis
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Rolls-Royce Holdings PLC stands as a titan in the aerospace and defense sectors, renowned for its cutting-edge engineering and innovation. Founded over a century ago, the company initially gained prestige through its luxury automobiles, but it has since evolved into a leader in the manufacture of aircraft engines and power systems. Today, Rolls-Royce is a key player in powering commercial and military aircraft, deploying advanced technologies that enhance fuel efficiency and reduce emissions. As the world shifts toward sustainable aviation, the company is strategically investing in next-generation propulsion systems, including electric and hybrid engines, positioning itself at the forefront...
Rolls-Royce Holdings PLC stands as a titan in the aerospace and defense sectors, renowned for its cutting-edge engineering and innovation. Founded over a century ago, the company initially gained prestige through its luxury automobiles, but it has since evolved into a leader in the manufacture of aircraft engines and power systems. Today, Rolls-Royce is a key player in powering commercial and military aircraft, deploying advanced technologies that enhance fuel efficiency and reduce emissions. As the world shifts toward sustainable aviation, the company is strategically investing in next-generation propulsion systems, including electric and hybrid engines, positioning itself at the forefront of an industry that is crucial for global connectivity and defense.
For investors, Rolls-Royce represents a compelling opportunity amid a transformative period in aviation. With a strong order backlog and partnership agreements, particularly in defense contracts, the company is well-poised for future growth. Its commitment to research and development signals a proactive approach to innovation, while the recent focus on operational efficiency and cost restructuring aims to boost profitability. As air travel recovers in a post-pandemic world, and with an increasing demand for greener aerospace solutions, Rolls-Royce is not just a legacy brand but a forward-thinking entity ready to navigate the challenges and opportunities of the future. For those looking to invest in a company with both a rich heritage and a dynamic vision, Rolls-Royce Holdings PLC stands out as a compelling prospect.
Rolls-Royce Holdings PLC operates primarily in the aerospace and defense sectors, and its core business segments can be categorized as follows:
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Civil Aerospace: This segment focuses on the design, manufacture, and servicing of engines for commercial aviation. It includes engines for large commercial aircraft, regional jets, and business aviation. Rolls-Royce is a major player in the wide-body aircraft engine market, with notable models like the Trent family, which powers aircraft such as the Airbus A350 and Boeing 787.
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Defense: Rolls-Royce provides power systems and services to military customers worldwide. This segment includes engines for military aircraft, naval vessels, and submarines. Their defense capabilities also extend to modular power and propulsion solutions, which are critical for modern military operations.
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Power Systems: This segment focuses on high-speed engine solutions and distributed energy systems. It serves a variety of applications, including marine propulsion, rail, and power generation. The Power Systems division encompasses Rolls-Royce's mtu brand, which is known for its engines and hybrid systems for various industries.
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Nuclear: Rolls-Royce is also involved in the nuclear power generation sector. This includes the development and maintenance of nuclear propulsion systems, primarily for naval submarines, as well as providing services and systems for civil nuclear power generation.
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Aftermarket Services: Rolls-Royce's aftermarket services business is critical for all segments, providing long-term maintenance, repair, and overhaul (MRO) services for its engines and systems. This segment aims to ensure reliability and performance over the lifecycle of their products, generating a steady stream of recurring revenue.
These segments demonstrate Rolls-Royce's strategic focus on high-value engineering and technology solutions across diverse markets, emphasizing innovation, sustainability, and competency in complex systems.
Rolls-Royce Holdings PLC possesses several unique competitive advantages that distinguish it from its rivals in the aerospace and defense industries. Here are some of the key factors:
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Brand Heritage and Reputation: Rolls-Royce is synonymous with luxury, quality, and engineering excellence. This strong brand reputation enables it to attract high-profile clients and maintain customer loyalty.
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Technological Expertise: Rolls-Royce has a long history of innovation in engine design and technology. Its investment in research and development allows it to produce some of the most efficient and reliable engines in the market, notably in civil aerospace and defense sectors.
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Diverse Product Portfolio: The company has a wide range of products across several sectors, including civil aerospace, defense, and power systems. This diversification allows it to mitigate risks associated with market fluctuations in any single segment.
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Strong Aftermarket Services: Rolls-Royce offers comprehensive aftermarket services, including maintenance, repair, and overhaul (MRO) services. This provides a steady stream of recurring revenue and helps to build long-term relationships with customers.
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Engine Health Monitoring Systems: The company has developed advanced predictive maintenance technologies that leverage data analytics and real-time monitoring. This not only enhances engine performance but also reduces downtime for operators.
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Sustainability Initiatives: Rolls-Royce’s commitment to sustainability, including its development of hybrid and fully electric propulsion systems, positions it well in an industry increasingly focused on reducing carbon emissions.
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Strategic Partnerships and Alliances: Rolls-Royce has established strategic partnerships with other industry players, governments, and research institutions, enhancing its capabilities and access to new markets.
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Global Presence: With a strong global presence and manufacturing bases in various countries, Rolls-Royce can cater to a wide range of international clients, benefiting from economies of scale.
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Experienced Workforce: The company boasts a highly skilled workforce with significant technical expertise, which is crucial for innovative product development and efficient manufacturing processes.
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Long-Term Contracts: Rolls-Royce often secures long-term contracts with aerospace manufacturers and governments, ensuring stable revenues and deeper integration with key clients.
These competitive advantages not only help Rolls-Royce maintain its market position but also enhance its ability to adapt to changing market conditions and customer needs.
Rolls-Royce Holdings PLC, like many companies in the aerospace and defense sectors, faces several risks and challenges in the near future. Here are some key factors to consider:
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Market Volatility: Economic fluctuations, particularly caused by geopolitical tensions (e.g., conflict in Ukraine, trade disputes), can affect demand for aircraft and defense services.
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Supply Chain Disruptions: Ongoing issues related to the COVID-19 pandemic have shown vulnerabilities in global supply chains. Rolls-Royce may face challenges sourcing materials and components, leading to production delays and increased costs.
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Technological Advancement and Competition: The aerospace industry is rapidly evolving with advancements in fuel efficiency, electric propulsion, and autonomous systems. Competing firms may innovate more quickly or develop more cost-effective solutions.
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Environmental Regulations: Increasingly strict regulations regarding carbon emissions and sustainability requirements can impose additional costs. Rolls-Royce must invest in greener technologies and may face pressure to demonstrate environmental responsibility.
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Turbulent Aviation Demand: With the aviation sector recovering unevenly post-COVID-19, uncertainties in demand for new aircraft and engine services present a risk. Variability in travel patterns and potential new pandemics could adversely affect this recovery.
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Program Execution Risks: Rolls-Royce has several ongoing projects and deliveries, particularly with new engine models. Delays or failures in these programs can impact financial performance and market reputation.
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Currency Fluctuations: As a global player, Rolls-Royce's profits are exposed to foreign exchange risks. Currency volatility can impact profitability, especially with significant revenues being derived in different currencies.
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R&D Investment Pressure: To stay competitive, Rolls-Royce must invest heavily in research and development for new technologies. Balancing this with profitability can be challenging, especially in uncertain economic conditions.
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Labor Relations and Workforce Management: The aerospace and defense industries depend highly on skilled labor. Changes in labor relations or difficulties in attracting and retaining skilled personnel can be detrimental.
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Cybersecurity Risks: As technology advances, the aerospace sector becomes increasingly exposed to cyber threats. Any significant breach can jeopardize both operations and customer confidence.
Facing these risks, Rolls-Royce must strategically manage its operations, invest in innovation, and maintain a resilient supply chain while adapting to external pressures.
Revenue & Expenses Breakdown
Rolls-Royce Holdings PLC
Balance Sheet Decomposition
Rolls-Royce Holdings PLC
Current Assets | 19.4B |
Cash & Short-Term Investments | 4.3B |
Receivables | 7B |
Other Current Assets | 8.1B |
Non-Current Assets | 13.6B |
Long-Term Investments | 544m |
PP&E | 4.5B |
Intangibles | 4.4B |
Other Non-Current Assets | 4.2B |
Current Liabilities | 15.3B |
Accounts Payable | 2.2B |
Accrued Liabilities | 2B |
Short-Term Debt | 6m |
Other Current Liabilities | 11.1B |
Non-Current Liabilities | 20B |
Long-Term Debt | 4.8B |
Other Non-Current Liabilities | 15.2B |
Earnings Waterfall
Rolls-Royce Holdings PLC
Revenue
|
17.8B
GBP
|
Cost of Revenue
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-13.8B
GBP
|
Gross Profit
|
4.1B
GBP
|
Operating Expenses
|
-1.4B
GBP
|
Operating Income
|
2.6B
GBP
|
Other Expenses
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-299m
GBP
|
Net Income
|
2.3B
GBP
|
Free Cash Flow Analysis
Rolls-Royce Holdings PLC
GBP | |
Free Cash Flow | GBP |
The company raised its 2023 operating profit guidance to ÂŁ1.2-1.4 billion from the previous ÂŁ0.8-1 billion, reflecting an anticipated improvement in targeted contract gains of ÂŁ200-250 million, including catch-ups and onerous provision releases. Free cash flow expectations were similarly elevated to ÂŁ0.9-1 billion, above the earlier ÂŁ0.6-0.8 billion estimate.
What is Earnings Call?
RR Profitability Score
Profitability Due Diligence
Rolls-Royce Holdings PLC's profitability score is 41/100. The higher the profitability score, the more profitable the company is.
Score
Rolls-Royce Holdings PLC's profitability score is 41/100. The higher the profitability score, the more profitable the company is.
RR Solvency Score
Solvency Due Diligence
Rolls-Royce Holdings PLC's solvency score is 50/100. The higher the solvency score, the more solvent the company is.
Score
Rolls-Royce Holdings PLC's solvency score is 50/100. The higher the solvency score, the more solvent the company is.
Wall St
Price Targets
RR Price Targets Summary
Rolls-Royce Holdings PLC
According to Wall Street analysts, the average 1-year price target for RR is 546.08 GBX with a low forecast of 242.4 GBX and a high forecast of 708.75 GBX.
Dividends
Current shareholder yield for RR is .
Shareholder yield represents the total return a company provides to its shareholders, calculated as the sum of dividend yield, buyback yield, and debt paydown yield. What is shareholder yield?
Profile
Country
Industry
Market Cap
Dividend Yield
Description
Rolls-Royce Holdings Plc designs, develops, manufactures, and services integrated power systems for use in the air, on land, and at sea. The firm is focused on power and propulsion systems. The Company’s segments include Civil Aerospace, Power Systems and Defence. Its Civil Aerospace is engaged in developing, manufacturing, marketing and sales of commercial aero engines and aftermarket services. Its Power Systems segment is engaged in developing, manufacturing, marketing and sales of reciprocating engines, power systems for civil power generation. Its Defence segment is engaged in developing, manufacturing, marketing and sales of military aero engines, naval engines and aftermarket services. The company delivers and services systems based on both gas and diesel engines and electrified hybrid systems. These solutions serve its customers in the marine and infrastructure sectors worldwide.
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The intrinsic value of one RR stock under the Base Case scenario is 385.34 GBX.
Compared to the current market price of 537.2 GBX, Rolls-Royce Holdings PLC is Overvalued by 28%.