News Column

Buyback sees Rolls' shares speed ahead

June 20, 2014


ROLLS-ROYCE, the FTSE 100 power systems manufacturer, yesterday announced plans for 1bn in share buybacks, a move that saw its stock jump by more than eight per cent.

The buyback - the company's first since it was privatised in 1987 - will be financed through the proposed divestment of its gas turbine energy business to Siemens, agreed in May.

Rolls-Royce intends to receive a total of 985m in cash for the deal that includes technology collaboration between the two companies.

The UK engineering giant was on the hunt to acquire Wartsila, the Finish engine maker, earlier this year.

After the deal fell through, Rolls warned investors that its projected group revenue and profit would be flat in the medium term. US and UK government reductions in defence spending were also major contributors to the lowered outlook.

The company will hope to reassure shareholders that the buyback - equivalent to almost five per cent of its 19bn market capitalisation - signals an intent to return to non-acquisition based growth.

Rolls-Royce also announced yesterday that capital expenditure would fall 0.9 per cent to four per cent over the next five years.

Wide-body aircraft production was projected to grow to 4,000 units by 2023 on the back of exiting narrowbody production in 2011.

"I'm confident that we have sustainable growth, but that does not mean year-after-year consistent growth, it means long-term sustainable growth," chief executive John Rishton said.

ANALYST VIEWS WHAT DID YOU MAKE OF THE ROLLS-ROYCE SHARE BUYBACK? By Michael Bow BEN BOURNE LIBERUM This re-iteration of guidance will be well received as many had expected worse. No material acquisitions are planned, which is a relief in itself as many investors were still concerned they would make a another play for Wartsila after July requiring more equity. Rating should improve.

SASH TUSA EDISON INVESTMENT After a half year that has been marked by a considerably higher than usual level of corporate activity and reports, we are pleased that the company is responding to the market. Further major acquisitions appear to have been ruled out, Rolls' balance sheet does not look over-committed.

SANDY MORRIS JEFFERIES The 1bn share buyback is something of a surprise, one that should be well received, in our view. We see an echo of our belief that Rolls-Royce has never been in a better position and there is a better balance to the group that makes it more robust.

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Source: City A.M. (UK)

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