Is the Rolls-Royce share price on the verge of recovery?

A recent trading update showed the company is benefiting from increased flying hours, so will the Rolls-Royce share price soon show similar signs of recovery?

| 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.

sdf

Key Points

  • Flying hours for planes using Rolls-Royce engines were up 42% year-on-year for the four months to 30 April
  • The firm swung from a near-£2bn operating loss in 2020 to a £513m operating profit in 2021
  • Its defence segment continues to be strong, with a sizeable pandemic-related order backlog

FTSE 100 firm Rolls-Royce (LSE:RR) is a major name in more than one industry. It manufactures a range of products including jet engines and power systems. Recently, it has also expanded into nuclear technology and electric aircraft. Currently trading at 81p, the Rolls-Royce share price is down 44% in the past six months and has visibly suffered throughout the pandemic.

However, does a recent trading update indicate that things are about to improve for this storied company? Let’s take a closer look.

Recent trading update

Rolls recently released a trading update for the four months to 30 April. The takeaway message was that the firm is trading in line with expectations. Furthermore, it maintained its full-year guidance for 2022.   

As a current shareholder, I was pleased to read that the business is taking action to mitigate the impact of supply chain issues in the aftermath of the pandemic. For example, it has been working on agreements with suppliers to ensure the steady flow of raw materials used in products like titanium.

The firm has already bounced back from a 2020 operating loss of around £2bn to an operating profit of £513m in 2021.

The business is also close to completing the sale of its engine and turbine manufacturing subsidiary, ITP Aero. Its sale could be worth £2bn to Rolls-Royce. The company announced last week that it would be using the proceeds to pay down its not insignificant debt pile of nearly £8bn.

Healthy civil and defence aerospace segments

The trading update also went into detail on the outlook for its civil aerospace and defence segments. It reported that flying hours were up 42% year-on-year. This refers to airlines using Rolls-Royce engines. 

This improvement is very good news for the business, because Rolls-Royce is paid by the flying hour by airlines using its engines. This could greatly boost company revenue.

I suspect that increased international air travel could lead to a further boost in civil aerospace revenue in the months and years ahead. However, future pandemic variants could halt this progress if fewer planes are flying.

The firm also discussed its defence segment. It has a large degree of confidence in this area of the business, given the order backlog created by the pandemic. 

At the end of 2021, Rolls-Royce won the contract to service the engines on the US Air Force B-52 programme. This is potentially worth $2.6bn. The company is also awaiting the outcome of its bid to gain a long-term contract for the US Air Force’s Future Long-Range Assault Aircraft (FLRAA).

Overall, I think things are starting to change for the better for the Rolls-Royce share price and it could be on the verge of recovery. Although results are improving, I’m currently satisfied with my exposure to the business.

That said, I won’t rule out purchasing more shares for my portfolio when air travel has recovered further.   


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.

Andrew Woods owns shares in Rolls-Royce. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Tesla car at super charger station
US Stock

£1k invested in Tesla stock at the start of the year is currently worth…

Jon Smith reveals the performance of Tesla stock in 2025 and explains why he doesn't believe the move lower is…

Read more »

Woman riding her old fashioned bicycle along the Beach Esplanade at Aberdeen, Scotland.
Investing Articles

What sort of return could someone get by investing £20,000 in UK dividend shares?

Should UK savers consider dividend shares over cash? Stephen Wright thinks those looking for long-term passive income would be wise…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Around a 15-year high, is Barclays’ share price still too cheap to ignore?

Barclays’ share price is at a level not seen since 2010, but price and value aren't the same thing, so…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

47% below fair value and with an 18% earnings growth forecast, should investors consider this FTSE retail institution now?

This FTSE 100 British retail institution lost its way for a while but has bounced back in recent years, and…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Lloyds share price: up 40% this year, is it time to take profits?

The booming Lloyds share price is up nearly 40% in 2025, outperforming its UK banking peers. Our writer asks whether…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

If the stock market crashes tomorrow, here’s what I’ll do with my portfolio

A stock market crash can feel terrifying. Here’s why staying calm matters – and how this recovering FTSE 100 company…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Prediction: in 12 months the smashed up Diageo share price could transform £10,000 into…

Harvey Jones has taken a big hit on his Diageo shares but forecasts suggest next year may offer something to…

Read more »

Aviva logo on glass meeting room door
Investing Articles

Will the Aviva share price reach £10? Here’s what needs to happen

With profits potentially set to double by the end of 2026, could the Aviva share price do the same and…

Read more »