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rolls royce (LSE: RR) The stock has been burning for months. In fact, the stock has more than doubled since bottoming out last October. He’s up more than 50% in 2023 alone as investors become bullish about the engine maker’s potential recovery.
But in five years, the stock is still down 51%. So is 154 pence today a scream buy for me?
Encouraging full-year results
Rolls-Royce engines power some of the biggest jets in the sky.So when the pandemic upended the global civil aviation industry, the engineering giant could have collapsed. Balance sheet It has a huge amount of new equity and debt.
But there were some encouraging signs in last year’s results. Net debt fell by nearly £2 billion to £3.3 billion over the course of the year. However, it should be noted that this reduction was primarily driven by cash raised from the disposal of assets.
Free cash flow from continuing operations improved to £500m in 2022 from an outflow of £1.5bn in 2021.
Going forward, the resumption of Chinese flights is clearly a big deal for Rolls-Royce. China accounted for about a quarter of his 2019 total engine flight hours before COVID-19. The company is paid by the time its engines are in the air, so the fact that flight hours this year is expected to return to 80% to 90% of his pre-pandemic levels is very encouraging.
Tufan Erginbilgic became Rolls-Royce’s new chief executive earlier this year. Before joining an engine manufacturer, blood pressureThere he helped reduce costs and increase profitability. in fact, barclays He once described the upturn in BP’s struggling downstream business as follows:To Fantastic”.
He promises to restore Rolls to an investment grade credit rating and then resume paying dividends. A large part of this involves continuing to improve our balance sheet.
However, significantly reducing the company’s debt from here can be more difficult. After all, the number of assets that can be sold is limited.
I don’t know the future yet
The company offers electric, hybrid, hydrogen Promotion. Then there is the Small Modular Reactor (SMR) business. Will we continue to invest in these long-term projects and potentially lose money?
I think we obviously need to do that in order to position ourselves towards a net zero world beyond fossil fuels. , engine makers are doing so from a much weaker financial position.
Rolls-Royce, for example, says its £500m SMR program will run out of cash by the end of 2024.
Erginbilgic is known for setting a very clear operational direction. So I’m sure investors will find out sooner or later.
In the meantime, I’m going to keep stock on my watchlist, especially after its recent explosive rise.
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