After falling over 50% in 2020, Rolls-Royce (LSE: RR) has followed a downward trend in 2021 – down 11% year-to-date. After a bullish run at the tail end of 2020, many thought that RR was back on the rise. However, currently around 90p, can the share price rise back to the levels it was once at? Let’s take a look.
Why has the RR share price fallen?
Covid obviously had a major impact on the Rolls-Royce share price, with it falling over 40% early in the pandemic. However, it was experiencing problems prior to this. It suffered problems with its Trent 1000 engine, an issue that proved expensive for the firm. This negatively impacted its operating profit and cash flow.
The issues it was experiencing were not helped by the pandemic, of course. In response to the global crisis, it announced a plan to cut up to 9,000 jobs, nearly a fifth of its workforce, while also staring at a £4bn loss for 2020. As my colleague Manika Premsingh mentioned, the wholesale cancellation of flights last year, plus the uncertainty we are experiencing now as we see countries transition from green, amber, or red and back again, has led to a decline in aviation-related stocks over the course of the past 18 months. This has deflated investor confidence – the effect clearly seen through a drop in the firm’s share price.
Can the Rolls-Royce share price take-off again?
Yet it is not all bad news. As a reaction to the pandemic, costs cuts were put in place to save the firm £1.3bn. From a long-term outlook, such savings could help it streamline operations generally. The aviation sector will (eventually) return to what it once was, and with a more streamlined model Rolls-Royce should benefit from this. Its half-year results are due for release on 5 August, which will give us some signs as to how effective the cost-saving programme has been. If positive, the Rolls-Royce share price could see a boost.
The recent news of the go-ahead for ‘Freedom Day’ on 19 July is also positive. As restrictions ease further, adding to the ongoing vaccination programme, the aviation sector could have a strong summer as more and more people look to jet out on holiday. This, of course, is dependent on the government not making a U-turn should cases rise post-Freedom Day. And it also relies heavily on the amber and red lists of countries not growing (which isn’t guaranteed).
Should I buy?
The Rolls-Royce share price has had a turbulent few years. The ongoing pandemic fills me with doubt and its performance hinges on the government’s eagerness to withdraw current travel restrictions. The results released in early August will also provide investors with a clear sign of if the firm is on track with the cost-savings programme. Long term, I can see the the share price rising, but I am wary. I intend to keep it on my watchlist until the half-year results, while also tracking travel restriction movements post-Freedom Day.
