Share price rebounded strongly as company helps provide much needed ventilators to the NHS
Rolls Royce shares ascend 20% in early trading
- Coronavirus has impacted the company with wide-body aircraft seeing a 25% drop in flying hours in the first quarter and a 50% fall in March
- Group expects lower engine delivery and maintenance volumes in the coming months
- As a result the company has withdrawn its previous guidance for 2020 as well as its final dividend
- Recommendation: With the worldwide grounding of commercial aircraft having no end date, we continue with our ‘Hold’ recommendation
Shares in Rolls-Royce rebounded strongly this morning following a trading update from the aero engine manufacturer. The company is helping to organise the supply chain for new ventilator production in the UK. It said its efforts to deal with the technical problems of its Trent 1000 engines were paying off with fewer aircraft on the ground. However, it was no surprise to hear that coronavirus has impacted the company with wide-body aircraft seeing a 25% drop in flying hours in the first quarter and a 50% fall in March. Rolls-Royce said it expects lower engine delivery and maintenance volumes in the coming months. As a result, the company has withdrawn its previous guidance for 2020 as well as its final dividend.
The shares have risen 20% in early trading although the backdrop of them having fallen 57% in the previous month shouldn’t be overlooked. Yet, investors will be pleased to hear the company is getting on top of the long-running issues with the Trent engine, and also that defence activity has not been affected by coronavirus as of yet. However, there were few other positives for investors in this update. Before the coronavirus outbreak there were signs of improvement thanks to the efforts of CEO Warren East, but with the current grounding of so many commercial jets, for what may be an extended period, the short-term outlook remains difficult so the shares are no better than 'Hold.'
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