Rolls-Royce stock price struggles on bearish outlook

By: Michael Harris
Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to… read more.
on Dec 20, 2020
  • Rolls-Royce forecasts challenging future prospects as air travel volume remains low
  • The British air giant still expects a positive cash flow for the second half of 2021
  • Shares of Rolls-Royce initially dropped 7% on Friday morning before racing higher to close in the green

Shares of Rolls-Royce PLC (LON: RR.) are trading under bearish pressure after the company lowered its cash outflow outlook for this year.

Fundamental analysis: Challenging near-term future ahead 

Rolls-Royce forecasts challenging future prospects as air travel volume remains low. The British air giant still expects a positive cash flow for the second half of 2021, hoping its heavy cost cuts would help turn its cash burn rate around.

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Rolls Royce manufactures engines that are used in Boeing 787s and Airbus A350s. The company has raised 2 billion pounds from shareholders last month to survive the blow from the coronavirus pandemic. 

The automaker expected to raise 4.2 billion pounds in November and failing to reach that figure prompted it to downgrade this year’s cash outflow outlook.

Rolls Royce also said the ongoing second wave of the coronavirus pandemic continues to curb the recovery in engine flying hours, which represents a vital measure of how much it is paid by airline companies.

After raising the money from shareholders and taking another 3 billion pounds of new debt in November, the carmaker had “ample liquidity to get us through 2021,” said its chief financial officer Stephen Daintith. 

Rolls Royce plans to unload 2 billion pounds in assets in order to pay the debt and announced 9,000 layoffs and factory closures to cut around 1.3 billion pounds in costs.

Technical analysis: Rolls-Royce stock price falls

Shares of Rolls-Royce initially dropped 7% on Friday morning before racing higher to close in the green. Shares surged over 200% since multi-decade lows recorded in October.  

Rolls-Royce stock daily chart (TradingView)

Looking from here, Rolls-Royce stock price bounced off of the ascending trend line (the purple line). The buyers will now look to push the stock towards 9-month highs above 140p.

Summary

Rolls Royce slashed cash outflow guidance for 2020 as low air travel volume continues to weigh on the company’s outlook, creating additional pressure on its stock.

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