Rolls-Royce market update disappoints but long term prospects remain intact say brokers

Otmane El Rhazi from Mindful Money » Shares.

Rolls-Royce’s latest market update has been labeled a disappointment but brokers believes the firm’s long-term prospects remain intact.

In today’s interim management statement, the aerospace and defence firm, reiterated its plans to accelerate its cost reduction efforts and outlined additional restructuring charges which will reduce its expected underlying profit in 2014 and 2015 by around £60m in both years.

Its statement, the group which issued a surprise profit warning last month, said: “Excluding these charges, our guidance is unchanged for 2014, 2015 and the medium-term outlook, as outlined on 17 October.

“We continue to expect the sale of our Energy gas turbines and compressor business to Siemens to complete before year-end. As previously announced, we plan to return the proceeds of this sale to our shareholders via a £1bn share buyback that will begin after completion.”

The group, once famous for its prestige motor cars, has endured a 29% share price fall over the past 12 months and will report its preliminary results for the financial year ending 31 December 2014 on 13 February 2015.

Commenting on the group’s latest market update, Helal Miah, investment research analyst at The Share Centre said: “Cost cutting efforts continue and restructuring costs are likely to dampen underlying profits by £60m in 2014 and 2015. Apart from this, the outlook for the business for the remainder of 2014 and medium term remains unchanged.

“The statement follows the surprise profit warning from the company last month and hasn’t elaborated any further. This will be disappointing for investors, who will undoubtedly have wanted some clarity regarding the company’s current position and future plans.”

But with the shares having dipped following the February and October profit warnings, Miah feels this represents a more attractive entry point for investors who have so far held off and continues to recommend Rolls Royce as a ‘buy’.

He added: “The company has fared relatively well considering the backdrop of a weak global economy and we believe Rolls Royce still has more to deliver, especially as the global economic recovery slowly gathers momentum. The recent restructure, cash inflow, long term service contracts, prospects for its marine division and joint ventures should help over the longer term.”