After sharp falls at the open this morning, aircraft engine maker Rolls-Royce (RR.) is recovering some ground, down 2.2% to 723.5p as investors digest a sorry set of 2016 results.
The company posted a £4.6bn loss for 2016. However, some big items obscured an otherwise more positive story. The company took a £4.4bn hit from weak sterling following the Brexit vote in June and a £671m fine to settle bribery charges.
Underlying profit is down 49% at £813m but this is 18% ahead of expectations with revenue up 9% to nearly £5bn.
The company also maintains its dividend at 7.1p despite free cash flow down 79% to £100m and net debt up 114% to £225m.
For 2017 the company is guiding for free cash flow to be at a similar level to 2016 with ‘modest performance improvements’.
WHAT THE ANALYSTS THINK
Market analyst at City Index, Ken Odeluga, says: ‘Continuing relief from the removal of the SFO’s case which has hung over sentiment for years, and the fact that underlying profit is well within projections will also go a long way towards setting the group, and its stock, off on the right foot for the year ahead.
‘Overall, Rolls probably has more room to overshoot its own cautious expectations despite risks to the outlook which clearly underlie that conservatism.’
Edison analyst Andy Chambers is positively encouraged by the numbers. ‘This is starting to feel a lot better than the depressing commentaries that surrounded the stock a year ago.
'As the civil model starts to move from investment in engines for the A350 and A330neo into the aftermarket delivery phase over the remainder of the decade, we think cash flow is likely to improve further particularly if supported by a recovery in Marine and support from the other activities.’
