The Rolls-Royce Holdings (LSE: RR.) share price has regained some of its recently-lost ground, after dipping below 600p in early April. That pushed it down to levels we hadn’t seen since before February’s full-year results sent it flying high.
Not long ago I was wondering how soon Rolls-Royce shares might make it through the £10 barrier. There’s actually nothing special about that price really. But markets do seem to like round decimal numbers. Recently though, I’ve been wondering if it can hold on to £7-ish levels.
Even around 730p, the shares are still more than 10% down from their high point this year. Is this another of those buying opportunities that I keep thinking I’m waiting for?
Confidence
The speed with which investors bought back into Rolls-Royce shares when it sounded like noises from the White House might have been softening says one thing to me. Confidence remains strong. The market seems to think a global trade war might not be so bad for the company after all.
But is that confidence misplaced? Aircraft construction strikes me as one of the worst potential casualties of trade protectionism. It’s got to be among the most widely globalised industries.
Look at Boeing, for example. Final assembly is in US plants, but the parts come from Japan, South Korea, the UK, Germany, Italy, France, Australia, Sweden… and China. Dozens of global companies provide parts and assemblies. And China contributes parts to every single commercial model that Boeing currently makes.
Boeing shares have recovered some of the hammering they took in the immediate aftermath of tariff day. But to assume no real impact on Boeing and on the whole aircraft construction business could be a big mistake.
Outlook
Rolls-Royce has its annual general meeting (AGM) on 1 May. Those can be dreary affairs, with nothing more than a formulaic roll-out of statistics, votes and the like. But I wonder if the board might have a few words to offer at this one, on how they see the global trade threat unfolding?
CEO Tufan Erginbilgiç isn’t shy when it comes to saying what he thinks, and I’d really like to hear him at this event.
At FY results time he was strongly upbeat, speaking of a “high-performing, competitive, resilient, and growing business“. And the numbers backed him up. But he did allude to “a supply chain environment that remains challenging“. And global supply chains aren’t going to be made easier by recent events.
Valuation
Forecasts put the shares on a price-to-earnings (P/E) ratio of 28.5 for the end of this year, dropping to 23.3 by 2027. That doesn’t look too high for a company with growth prospects. But projected earnings per share (EPS) growth is relatively slow, with a 2% rise between 2024 and 2027 as there’s a dip on the cards this year.
I like today’s lower share price. But I don’t like the greater uncertainty we now face. Rolls-Royce doesn’t fit my risk profile, so yes, I can resist it. But I still think growth investors who don’t mind a bit of risk could do well to consider it now.
