Shares in Rolls-Royce Holdings (LON:RR) have soared in London this morning, as the British engine maker forecast that it will exceed its cash flow target by 2020. The news comes hot on the heels of the group’s latest restructuring update.
As of 09:29 BST, Rolls-Royce’s share price had added 11.08 percent to 980.60p. The stock is outperforming the broader UK market, with the benchmark FTSE 100 index having slipped into negative territory and currently standing 0.36 percent lower at 7,737.62 points.
Rolls-Royce updates on targets
Rolls-Royce announced in a Capital Markets statement this morning that it was now well-placed to exceed its free cash flow target of £1 billion by 2020, and unveiled a mid-term target of free cash flow per share to exceed £1.
“After a decade of significant investment we are committed to delivering significantly improved returns,” Rolls-Royce’s chief executive Warren East commented in the statement. Today’s statement comes after the British engine maker unveiled plans to axe 4,600 jobs over the next two years, targeting run-rate net cost savings of £400 million a year by end of 2020.
Rolls-Royce further updated investors on its problematic engines, noting that its current assessment was that the further issues encountered with Trent 1000 since its full-year results in March could lead to combined additional 2018 cash costs of around £100 million. The engine maker, however, said that it was expecting to offset these extra costs and was therefore sticking to its free cash flow guidance of around £450 million for the current year.
Analysts weigh in on update
Jefferies analyst Sandy Morris told Reuters that the free cash flow per share of over £1, meant that free cash flow itself would come in at about £1.9 billion in the mid-term.
“It’s told us that in the mid-term, that’s about four years or five years, it can do £1.9 billion. If it does that then it’s a cheap stock,” he pointed out.