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.
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 shareshas always been primarily about the the prospects for the company's civil aerospace business, as customers such asBoeing and Airbus ramp up production.
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In 2014, profits in thissection are expected to grow strongly. Total company profitsare expected to start growing again in 2015. Taking a step backfrom the short-term outlook, Rolls-Royce looks to be in rudehealth.
Its order book of £71bn is nearly five times current salesand will help deliver long-term profit growth. It can still cutcosts and boost cash flow if need be. The company also has£1.9bn of net cash in the bank.
Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.
After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.
In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for Moneyweek in 2010.
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