Rolls-Royce (LON:RR) continues to work through its current investment phase and external economic turbulence has not further damaged the prospects. The current shortfall in cash flow performance is being addressed. We believe the strength of the core civil engine model should ultimately reassert itself, lifting equity value towards significantly higher cash valuations.
2015 a bit better than expected
The much downgraded expectation for FY15 was at least met, and indeed two unflagged one-offs actually led to a moderate beat of expectations at the underlying earnings level. As anticipated, the company has chosen to cut the dividend payment to shareholders, although a 50% reduction to the final amount was less than we expected. The FY16 interim is to be cut by a similar amount, with a further assessment at next year’s prelims. The main shortfall came in Marine due to the severely depressed offshore market. Civil was also weaker for the previously indicated reasons of lower legacy engine revenues and declines in regional and bizjet engine markets.
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