Should I buy more Rolls-Royce shares while they’re still under £1?

Although Rolls-Royce shares have been volatile, Andrew Woods gives an insight into why he’s prepared to add to his holding at current levels.

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I’ve been steadily buying up Rolls-Royce (LSE:RR) shares over the past number of months. This FTSE 100 heavyweight has struggled since the beginning of the pandemic. However, things now seem a bit brighter. Is it time to snap up more of the shares while they’re still under £1?

Turning things around

In the past year, the share price has fallen around 11%. In the last month, the shares are down 5%. At the time of writing, they’re trading at 86p.

During the pandemic, when the vast majority of planes were grounded, there was a massive decline in demand for new jet engines. This had a heavy impact on the company’s civil aerospace segment.

Due to international travel restrictions, the firm’s revenue also took a hit because it’s paid by the flying hour by airlines using Rolls-Royce engines.

However, in an update for the first four months of 2022, the business stated that civil aerospace flying hours were up over 40% year on year. It also expects underlying revenue to grow at a compounding annual growth rate of between 10% and 15%.

While there is the remote threat of further lockdowns, this is an indication that the airline and jet engines industries are starting to recover. 

Despite this, many airlines have been forced to cancel flights in recent months due to staff shortages. It’s always possible that this could have a detrimental impact on the company’s revenue derived from engine flying hours. 

With second-quarter results due soon, I’ll be watching very closely to see if there has been any further progress.

Busy defence and civil aerospace segments

In the past week, the business has partnered with easyJet to develop hydrogen combustion technology for use in jet engines. If successful, this could generate significant cash flow in the coming years. 

Furthermore, Rolls-Royce is working with aircraft manufacturer Airbus to develop engines for new widebody aircraft, including the A350 and A380. This may bring more revenue within the civil aerospace sector.

The company also has a large backlog of defence contracts. This includes a lucrative engine replacement contract with the US Air Force for its B-52 programme.

Additionally, the business has signed a deal with French competitor Safran to work on a missile propulsion system for both the UK and French governments. While this may not be completed until the late 2020s, it may further strengthen Rolls-Royce’s balance sheet in the coming years.

Overall, my holding in the firm has mostly been in the red for the time I’ve held it. Nevertheless, consistent buying during market dips means that I’m in a much better position than I otherwise would have been. To that end, I’m not going to change my tactic, so I’ll add more shares soon while they’re still trading for under £1.

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 considered so you should 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.

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