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The Rolls-Royce share price zooms past 100p. What’s next?

Rolls-Royce's business aviation engine, the Pearl 700
Image source: Rolls-Royce plc

Rolls-Royce (LSE: RR) releases its first-half numbers only the day after tomorrow. But in what looks like a good omen, if one believes in such things, the Rolls-Royce share price is already rising. It zoomed past 100p yesterday. And has stayed above these levels in today’s trading, after remaining just below 100p for much of the last month. 

Selling off non-core business

This uptick follows the likely sale of its Norway based maritime engines’ business, Bergen Engines, to the UK’s Langley Holdings. It had earlier tried to sell it to a Russian company, but the Norwegian government had stopped the sale for security reasons. The news would have been disappointing at any time. But at a time when Rolls-Royce has been struggling, it sounded even more so. A share price dip coincided with this occurrence.

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Travel demand picks up

There are other positives too. A pickup in travel demand during the summer month augurs well for its civil aircraft engines’ business, which has been particularly challenged in the past year. Switzerland headquartered low-cost airline Wizz Air, for instance, expects demand to be back to pre-pandemic levels this month. 

Similarly, the International Consolidated Airlines Group that owns British Airways expects to fly at up to 75% of its pre-pandemic capacity in the final quarter of 2021. Similar statements have been made by other airlines, as my colleague Christoper Ruane pointed out in an article yesterday. 

New defence contract

It has also just got a contract from the UK’s Ministry of Defence, to design and develop Tempest, a fighter jet. This will combine the expertise of various entities, including BAE Systems. Rolls-Royce had mentioned increased funding by the UK government in its last trading update in May, including that for a future combat air system. This latest development is a positive follow up from there. 

What to expect from the Rolls-Royce results

Based on these, I see why the Rolls-Royce share price is rising. But for it to rise sustainably, ultimately its numbers need to look better. And aero-engines for the civil aviation segment is its big revenue making segment. The half-year results for 2021 can be expected to look fairly poor keeping this in mind. We have lived through yet another lockdown for much of this time, and it is only now that signs of improvement are visible. 

I am interested in two aspects of its results though. The first is its outlook, which can help me assess how much increase can be built in when figuring out its future share price trajectory. The second is the growth in its power systems and defence segments, both of which were profit-making at the last reported count. 

What I’d do about the Rolls-Royce share price

If Rolls-Royce’s outlook is sufficiently positive in its half-year results statement, I reckon its share price can rise further. To buy the stock, however, I will wait for more signs of improvement that include a return to making profits. But that can take its time. It is on my watchlist for now.

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Manika Premsingh has no position in any of the shares mentioned. 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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