Rolls-Royce share price subdued as S&P trims group’s credit rating

Shares in Rolls-Royce Holdings (LON:RR) have fallen more than one percent in London today, underperforming the broader market, as Standard & Poor’s trimmed the group’s credit rating. The move followed the engine maker’s bribery settlement last week which will see the company pay £671 million to avoid being prosecuted by anti-corruption investigators in the UK, US as well as Brazil.

As of 14:11 GMT, Rolls-Royce’s share price had lost 1.59 percent to 680.50p, as compared with a 0.17-percent rise in the benchmark FTSE 100 index. The group’s shares have gained more than 25 percent over the past year, and are up by nearly two percent so far in 2017.
Reuters reported that S&P had downgraded Rolls-Royce’s credit rating from ‘A-’ to ‘BBB+’ today, while noting that the engine maker’s outlook was stable and profits set to recover this year. The ratings agency explained that its view of the blue-chip engine maker now had a ‘modest’ financial risk profile compared with its former classification of ‘minimal’.

“Rolls-Royce’s financial risk profile is constrained by weaker-than-expected leverage metrics, especially in 2016; high levels of capex and research and development spending; historical working capital outflows; and the cash disbursement of fines,” S&P pointed out, as quoted by Reuters, adding that it expects the group’s leverage metrics to improve this year.
A spokesman for Rolls-Royce meanwhile told the newswire that the company maintained a regular dialogue with ratings agencies and did not comment on individual ratings actions.
The 19 analysts offering 12-month price targets for Rolls-Royce for the Financial Times have a median target of 600.00p on the shares, with a high estimate of 935.00p and a low estimate of 475.00p. As of January 21, the consensus forecast amongst 23 polled investment analysts covering the stock has it that the company will underperform the market.
As of 14:46 GMT, Tuesday, 24 January, Rolls-Royce Holding PLC share price is 685.50p.