Can Rolls-Royce Holding PLC Make £3 Billion Profit?

Will Rolls-Royce Holding PLC (LON: RR) be able to drive profits higher?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Rolls-Royce

Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to push profits up to levels not seen in the last few years.

Today I’m looking at Rolls-Royce Holding PLC (LSE: RR) (NASDAQOTH: RYCEY.US) to ascertain if it can make £3bn in profit. 

Have we been here before?

A great place to start assessing whether or not Rolls-Royce can make £3bn in profit is to look at the company’s historic performance. Unfortunately, Rolls-Royce has never been able to make £3bn in profit although the company did report a pre-tax profit of £2.7bn for 2012. However, I should mention that this profit included some one-off items, excluding these items Rolls-Royce’s 2012 pre-tax profit was only £1.5bn. In addition, Rolls-Royce only recently reported a 41% slump in profit for 2013, which is the first time in 10 years that the engineering firm has missed growth targets.

Having said that, after trawling through Rolls-Royce’s financial report for 2013, I believe that the company has all the foundations in place to make a £3bn profit in the near future. For example, including the acquisition of Tognum, which is now part of Rolls-Royce’s power systems business, on an underlying basis, the company’s revenue jumped 27% during 2013. Further, using the same underlying and adjusted figures, profit for 2013 actually jumped 23% to £1.8bn, excluding one-off items.  

But what about the future?

So, Rolls-Royce put in a solid underlying performance during 2013 and the company’s profit and revenue is only likely to rise from here. Why am I so sure? Well, thanks to Rolls-Royce’s reputation for quality around the world, the company left 2013 with an order backlog totalling $71.6bn, up 19% from the same period last year. 

Let me put this into some perspective, Rolls-Royce’s underlying revenue came in at £15.5bn for full-year 2013, that means that the company’s backlog is locking in around three years worth of revenue at current rates, giving investors plenty of clarity on the groups future outlook.

But there is also evidence to suggest that demand for Rolls-Royce’s products and services will only rise from here-on-out. Specifically, global aviation leader Boeing, expects that over the next two decades, the world will require another 35,000 commercial airliners, worth a total of $5trn. As one of the worlds premier aviation engineering firms, Rolls-Royce is likely to see a huge order inflow as a result of this demand.

What’s more, Rolls-Royce’s management remains committed to cost management, which should only lead to wider profit margins over the next few years.

Foolish summary

Overall, Rolls-Royce’s future looks bright and although the company may have suffered a set-back in the short-term, over the long-term the company’s reputation and the global demand for commercial airliners will only drive revenue, and profits higher. 

So, I feel that Rolls-Royce can make £3bn profit. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Rupert does not own any share mentioned within this article.

More on Investing Articles

Investing Articles

The FTSE 100’s newest member looks like a no-brainer to me!

This Fool explains why she sees the newest member of the FTSE 100 as a great opportunity after its recent…

Read more »

Investing Articles

Empty Stocks and Shares ISA? Here’s how I’d start earning a second income from scratch

Like the thought of earning extra cash tax free? Our writer explains what he'd do to begin earning passive income…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

No savings at 25? I’d start by investing £3k in these 3 red-hot FTSE 100 shares

Harvey Jones thinks these three FTSE 100 stocks would be a great way to kickstart a portfolio of UK shares.…

Read more »

Young Black woman using a debit card at an ATM to withdraw money
Investing Articles

Up 35% from this year’s low! Here’s where I think Lloyds shares are headed in H2 of 2024

My Lloyds shares are already doing well this year but that’s not guaranteed to continue. What factors could turn the…

Read more »

Investing Articles

Approaching £5, is there still growth ahead for the Rolls-Royce share price?

The Rolls-Royce share price has been flying in the last year. But is there more growth ahead or should investors…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

Could Raspberry Pi be a growth share to buy and hold?

Our writer explains why he thinks a newly-listed UK growth share could have a bright future -- and considers whether…

Read more »

A pastel colored growing graph with rising rocket.
Market Movers

The FTSE 100 jumps after the Bank of England meeting. Here’s what’s next

Jon Smith runs over the takeaways from the Bank of England meeting today and flags up which FTSE 100 stocks…

Read more »

Middle-aged white male courier delivering boxes to young black lady
Investing Articles

How I’d start investing in great value UK shares with £10,000 today

Harvey Jones can see a heap of UK shares he'd like to add to an ISA today. Many combine low…

Read more »