Company in the news: Rolls-Royce

Rolls-Royce (LSE: RR) fell foul of the City expectations machine last week because, despite posting very good financial results for 2013 with profits growth of 23%, it has said that profits won’t grow at all in 2014. The share price has been hammered.

We tipped Rolls-Royce as a long-term buy in MoneyWeek a few weeks ago. While the timing of this tip now looks unfortunate, we still believe that the long-term prospects for its shares remain good.

Profits will be held back in 2014 due to governments cutting back on defence spending. Consequently, Rolls-Royce expects its defence profits to be down by 20%. That’s disappointing, but the investment case for the shares has always been primarily about the the prospects for the company’s civil aerospace business, as customers such as Boeing and Airbus ramp up production.

In 2014, profits in this section are expected to grow strongly. Total company profits are expected to start growing again in 2015. Taking a step back from the short-term outlook, Rolls-Royce looks to be in rude health.

Its order book of £71bn is nearly five times current sales and will help deliver long-term profit growth. It can still cut costs and boost cash flow if need be. The company also has £1.9bn of net cash in the bank.

Verdict: buy

Merryn

Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.