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The -£17 Billion Engine

About: Rolls-Royce Holdings plc (RYCEF), RYCEY
by: GreenWood Investors

We’re in the final stages of the Trent 1000 fan blade issues remaining a problem. The market has penalized the company by £17 billion (125% of the market cap) given the issues.

70% of the company’s civil aerospace business is entering the cash-generation phase of the life-cycle with hefty ramps already taking place.

Rolls is on course to continue taking market share in the industry, from a much stronger base in mid-2020s.

We outline all of the bear theses, only 1 of which concerns us. Recent data and disclosures provide additional comfort that this risk is ebbing.

The roadmap ahead is quite compelling, with FCF in the process of increasing between 3-5x over the next 3 years. Regardless of a re-rating, we expect material upside.

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