Many investors include in their long-term portfolios of the Aerospace and Defense Industry enterprises (A & D) or the relevant stock funds (ETF).
Today we will focus on the global giant of this sector, or rather on the Rolls-Royce aircraft engine manufacturer (OTC: Rycey), which is part of the FTSE 100 index.
Over the past year, RR shares decreased by more than 50%. On January 14, they closed at 106.65 pen plans ($ 1.53 for papers trading in the USA).
The history of Rolls-Royce began in 1906. Motorists know the company as a British manufacturer of car luxury cars. But during World War II, the company began to produce aviation engines. The financial difficulties of the 1970s led to the fact that the company was divided into two cars engaged in cars and engines.
In 1998, the Rolls-Royce Motors car group was sold to the German automaker Bayerische Motoren Werke (DE: BMWG) (OTC: BMWYY). The second company, Rolls-Royce Holdings PLC, continues to produce aviation engines. It is about her today and talk.
Governments - Main consumers of products A & D
Aerospace industry includes military and commercial aviation. A pandemic of 2020 caused a powerful blow to the segment of civil aviation. The number of clock hours declined sharply, which touched upon not only airlines, but also such giants like Rolls-Royce and Boeing (NYSE: BA). Their revenue and arrival rates for the last year were at best ambiguous.On the other hand, most countries will not be bought on the "defense", thereby supporting the financial flows of A & D companies.
In 2019, the leader in military expenditures was the United States. Follow China, India, Russia and Saudi Arabia.
However, if you consider these costs as a percentage of gross domestic product (GDP), the list changes somewhat. Saudi Arabia comes to the foreground, then Israel, Russia, the USA and South Korea.
Fresh reports also showed that:
"The European Military Product Market is growing. Over the past five years, the defense costs steadily increased. The continent accounts for 16% of world military spending, and the aggregate annual growth rate from 2015 to 2019 is 3.4%. "
In this context, we will try to determine the Rolls-Royce position in this industry.
Fresh financial indicators
Rolls-Royce engines are used not only in civil and military aircraft. For example, her subsidiary from Bergen (Norway) supplies medium-turn motors to generate electricity in the oil, gas and maritime industry.
In addition, the Group provides specialized engineering services, as well as products and critical security systems for nuclear power plants.
The results of the first half of 2020 published in August reflected the negative impact of the pandemic on operating activities and financial indicators. Revenue amounted to 5.8 billion pounds of sterling (US $ 7.9 billion), which is 26% lower than in the same period of the previous year. The loss before taxes amounted to 5.4 billion pounds sterling (or 7.4 billion dollars).
In December, Rolls-Royce issued a financial report. Management has focused on saving 1 billion pounds sterling (or 1.36 billion dollars) for 2020. Nevertheless, the company, most likely, completed it with "net arrears in the amount of 1.5 to 2.0 billion pounds of sterling, excluding obligations under the lease of approximately 2.1 billion pounds."
Management believes that in 2022 it will be able to generate 750 million pounds of sterling (or 1.02 billion dollars) in the form of a free cash flow. However, if the aviation industry will be recovered longer than it is supposed, the forecast may be too optimistic.
General Director Warren East notes:
"We have achieved good progress in the framework of the restructuring program. Consolidation and reorganization in the civil aviation industry are in full swing. Our November recapitalization package in the amount of 5 billion pounds is well funded; He raised our stability and strengthened the balance ... We continue to move towards the achievement of sustainable energy and the formation of the economy with zero carbon emissions. "
Despite the collapse of 2020, in January, RR shares started very confident. The company "signed an innovative contract with the State Space Service of Great Britain as part of the study of prospective use of nuclear energy to study space."
NASA also considers the potential of nuclear power in the context of space travel, since it can significantly reduce the flight time.
In the new decade, Rolls-Royce is able to expand the range of products and services, and increase the revenue due to these efforts.
Summarize
Rolls-Royce is an important component of the FTSE 100 index and the world-recognized giant A & D. However, in the coming quarters of its value for shareholders will be under a big question.
Given the fact that passenger air transportation for the most part is paralyzed, Rolls-Royce may not be insured from further turbulence. We are ready to buy RR shares in case of correction by 5-7% of the current levels. We would also like to see the results of the next half year (which will come in the coming weeks) to appreciate the company's successes in strengthening its financial balance.
Investors who want to invest in this industry should pay attention to the ETF series. These include Invesco Aerospace & Defense ETF (NYSE: PPA), Ishares U.S. Aerospace & Defense ETF (NYSE: ITA), SPDR® S & P Aerospace & Defense ETF (NYSE: XAR) and Procure Space ETF (NYSE: UFO.
Note: Assets considered in this article may not be available to investors in some regions. In this case, consult an accredited broker or financial consultant to help choose a similar tool. The article is exceptionally introductory. Before accepting investment solutions, be sure to conduct an additional analysis.