Hot Features
Premium
Level up your trading with our powerful tools and real-time insights all in one place.
An 8.12% increase in Rolls Royce’s share price (LSE:RR.) helped the FTSE 100 break back past the 6,800 mark, closing out the day at 6,808. Rolls Royce shares opened at 1,066.00, up 56 pence from yesterday’s close of 1,010.00, then continued to strengthen throughout the day to 1,092.00.
The gain today came as a result of http://uk.advfn.com/news/UKREG/2014/article/62619651 early this morning that it has “committed to a share buyback of £1.0 billion subject to the completion of the sale of its Energy gas turbine and compressor business to Siemens,” which is expected to be finalized within the calendar year.
CEO, John Rishton, explained that, “As no material acquisitions are planned, and reflecting the strength of our balance sheet, we will return the proceeds of the Energy sale to our shareholders.” Rolls is acting in response to investors who had raised concerns earlier this year in February.
As a result, Rolls will generally abandon the M&A strategy that has become fashionable in the sector. Investor concerns became evident in February when the Rolls share price dropped dramatically from 1,210.00 on 12 February to 976.50 on the 18th. Over 60 million shares were trading during that time period. It is important to keep in mind that Rolls’ share price, although in decline since the beginning of 2014, is almost 175 points above its value as of 31.12.2012 and 739 pence higher than 22 June 2009.
The outlook for Rolls is still flat in the short term, but the company is forecasting significant increases in revenue and profitability in FY2015 as it increases its production of aircraft engines.
Not all investors are pleased with the company’s strategic plan, but then the only boards that most of those people are on are message boards. Ben Bourne of Jeffries noted that “many expected worse” from Rolls, so this move is a strong positive. At least some have been concerned about the cancellation of Emirate airlines’ cancellation of Airbus A350 orders. The A350s are powered exclusively by Rolls Royce engines. The news release today has apparently helped to ease a lot of that concern.
