Seeking Alpha
Conglomerates, long-term horizon, aerospace, oil & gas
Profile| Send Message|
( followers)  

Rolls-Royce Group (OTCPK:RYCEY) provides integrated power solutions. They build propulsion systems for aircraft, ships, oil and gas industry and also nuclear power. The Rolls-Royce Group is not to be confused with Rolls-Royce Motor Cars, which belongs to the BMW Group.

Rolls-Royce is one of the leading aerospace engine manufacturers and delivers to the major aircraft manufacturers.

This article is part of the aerospace industry article after the battle for leadership that Boeing (NYSE:BA) and Airbus (OTCPK:EADSF) wage, the third position for Bombardier (OTCQX:BDRBF) or Embraer (NYSE:ERJ) and comparing the military contractors Lockheed Martin (NYSE:LMT) and Northrop Grumman (NYSE:NOC).

CORPORATE FUNDAMENTALS

Financial Data Sources

All financial data is from reports published by the Rolls-Royce Group. Notes on the (financial) data published:

  • Exchange rate GBP/USD 1.60
  • Stock price 19.97 USD / 12.48 GBP
Corporate 2012 2011 2010 2009 2008
Revenue $19,462 $17,798 $17,736 $16,662 $14,531
Net income $2,494 $1,357 $869 $4,731 -$3,027
EBIT $2,197 $1,902 $1,814 $1,875 $1,379
EBIT% 11.29% 10.69% 10.23% 11.25% 9.49%
FCF $1,549 $1,288 $618 $4,450 -$3,376
EPS $1.95 $0.73 $0.46 $1.91 -$1.18
Dividend $0.31 $0.28 $0.26 $0.24 $0.23
Dividend Yield 1.57%
ROA 8.61% 5.16% 3.34% 19.17% -12.33%
ROCE 12.57% 12.53% 12.52% 12.86% 9.68%
ROE 25.54% 18.77% 13.65% 78.19% -85.03%
Debt/Equity 1.97 2.64 3.08 3.08 5.90
PE (Price/Earnings) 16

(x 1m, with the exception of Dividend and EPS)

(click to enlarge)

  • Higher revenue because of more deliveries;
  • EBIT growth influenced by IAE restructuring, but lowered by R&D for Trent engines.

Rolls-Royce has a geographically well-spread customer base. North America, Europe and Asia each contribute a third of the revenue.

(click to enlarge)

Civil Aerospace20122011201020092008
Revenue$10,299$8,915$7,870$7,170$7,203
EBIT$1,163$798$627$789$906
EBIT%11.29%8.96%7.97%11.00%12.57%

.

Military Aerospace 2012 2011 2010 2009 2008
Revenue $3,867 $3,576 $3,397 $3,216 $2,698
EBIT $646 $602 $494 $405 $357
EBIT% 16.71% 16.82% 14.55% 12.59% 13.23%

(x 1m)

  • Order book lower because of budgetary cuts clients;
  • EBIT higher because of less R&D, cost improvement and increased volume of spare parts.
Marine 2012 2011 2010 2009 2008
Revenue $3,598 $3,634 $4,146 $4,142 $3,526
EBIT $470 $459 $531 $421 $293
EBIT% 23.54% 20.30% 26.93% 25.58% 24.24%

(x 1m)

Marine has an impressive EBIT%

  • Order book increased with almost 50% for nuclear cores for the new British submarines;
  • Increased demand from the oil and gas industry.

A cause for concern is the influence of foreign exchange rates on the results. On a yearly basis this can amount to hundreds of millions. It was the primary cause of the loss in 2008.

FUTURE

Rolls-Royce has good prospects for the future. A wide variety of products and a good geographical spread of clients provide continuity.

When viewed over the last years Rolls-Royce has turned from a company in problems (although in essence not caused by the business itself) to a growing, profitable company, despite the economic crisis and government budget cuts all over North America and Europe.

(click to enlarge)

The turnaround is a true credit to Rolls-Royce's management, strategy and decisiveness.

INVESTING

(click to enlarge)

Trading at a PE of 16, Rolls-Royce is not expensive:

  • Well-led company;
  • Big market position;
  • Market with high entry barriers;
  • Decent dividend.
Price USD Stock Upside
Current $19.97 0.00%
Low $15.81 -20.84%
High $26.75 33.96%
Embraer High $72.95 265.35%
Source: Rolls-Royce: A 'Powerful' Buy