When I first bought Rolls-Royce (LSE:RR) shares, we were in the midst of a pandemic. My primary rationale for the purchase was the thought that air travel would recover at some point. Company revenue would therefore increase because it’s partially composed of the number of flying hours involving Rolls-Royce engines.
This investment rationale was basically correct, although the recovery took slightly longer than I thought. Two years after Covid-19 struck, the firm is once again enjoying revenue streams from its civil aerospace operations, not to mention defence and other new markets. Over the last month, however, the share price has fallen 20%, currently trading at 92p. Is it time to top up my current holding? Let’s take a closer look.
Recent results and cheap Rolls-Royce shares
I have previously written about how Rolls-Royce shares are cheap compared to competitors Safran and General Electric. Suffice to say, with positive recent results, exciting innovations, and a falling share price, I’m not sure I’ve seen a better time to buy Rolls-Royce shares for my long-term portfolio.
The business released its 2021 calendar year results in late February 2022. The big news was that the company recorded a profit of £124m. This was an increase from a loss of £3.1bn in 2020. This came as a relief to me, a current shareholder. What’s more, earnings-per-share (EPS) grew to 1.48p from a loss per share of 51.81p the previous year. Overall, however, group revenue declined slightly by about £200m. It should also be noted, however, that past performance is not necessarily indicative of future performance.
Improving defence and civil aerospace segments
In the civil aerospace segment, that’s mainly concerned with commercial jet engines, revenue stood at £4.5bn. It still reported a small loss of £172m. Nonetheless, the firm reported that the new Airbus A350 Freighter will be a great outlet for its Trent XWB engine. Furthermore, the business will benefit from increased engine flying hours as international travel grows again. This segment could be negatively impacted, however, if a future Covid-19 variant emerges and restricts international travel.
In addition, the defence segment reported a £457m profit, mainly from the long-term contract for the US Air Force’s B-52 engine replacement programme. The company is currently competing for a contract involving the Future Long-Range Assault Aircraft (FLRAA) programme. The result should be known soon and, if successful, could have a very positive impact on Rolls-Royce shares.
New markets
The firm is currently exploring two new market areas. The first is in nuclear energy through the future construction of Small Modular Reactors (SMRs). The company is still at the funding stage, having secure £85m from the Qatari Sovereign Wealth Fund in December 2021. The SMRs should be added to the grid by 2030 and will produce power equivalent to 150 wind turbines.
Secondly, Rolls-Royce is in the early stages of testing the viability of electric aircraft. Having set a new world speed record last November, the electric aircraft project will likely become more complex as the company expands its scope. If successful, this innovation could be a game-changer within the aviation industry and should have a positive impact on Rolls-Royce shares.
Overall, I continue to like this company. Recent results are positive and new markets are exciting. I will be adding to my current holding today, while the share price is still in a dip.
