Is Rolls Royce All Set To Launch Test Of Hybrid-Electric Aircraft By 2021?

Rolls-Royce Holdings PLC (RR) is a London, United Kingdom-headquartered aerospace and defence company, focused on power and propulsion systems. It is one of the world’s leading industrial technology companies and seeks to deliver clean, safe and competitive solutions to a wide range of industries. Throughout the world, Rolls-Royce has continuously remained one of the most famous and renowned names in engineering, with customers in over 150 countries, ranging from commercial airlines and leasing customers to armed forces and marine customers. It also engages in supporting a worldwide network of 31 University Technology Centres and employs 54,500 people in 50 countries, spanning across six continents.

Recently the aerospace and defence group recorded that it has forayed into a negotiation with Siemens to acquire its electric and hybrid aerospace propulsion operations. This move was in line with the group target to play a major role in the "third era" of the aviation industry. In the exchange filing made by the group as on June 18, the group stated that the proposed acquisition would be finalised by late 2019. This move would increase the delivery of their electrification strategy and boost aircraft business. As a part of the Rolls Royce and Siemens arrangement, the earlier one is seeking to capitalise opportunity to work along with Siemens, as both the companies are committed to offer support for the reduction of CO2 emission for the welfare of the society.

The group has already stepped-up towards the electrification of aircraft, and eminently completed the ground test of a hybrid propulsion system that is instrumental in a portfolio of smaller transport platforms including hybrid electric vertical take-off and landing vehicles, general aviation aircraft and hybrid helicopters. The group is focusing on flying a hybrid electric test aircraft in the coming two years period as the group is trying to present itself at the forefront of the aviation industry's gigantic revolution since Jet engines invented. The proposed deal estimated to be worth €50 mn and Rolls Royce will get crucial intellectual property of Siemens with its 180 electrical engineers and designers of Siemens would move to the Holding group.

The chief of Rolls Royce, Warren East, said this deal would help us to accelerate to launch a test flight by 2021. However, Rolls Royce is not alone who is chasing to launch a hybrid-electric test flight by 2021, other major players within the aviation arena like Airbus and Boeing are also working at their own projects.

Around 2 per cent of global carbon dioxide emission comes from the aviation industry, and now this industry is witnessing a number of pressures from the public to minimise their output. Last week, the British government committed to bringing down CO2 emission to nearly zero by 2050.

In 2018, the group deployed around £1.4 bn in research and development activities and provided a global support network to 29 University Technology Centres.

Financial Performance – FY 18 (£ mn)

During the FY18, group’s reported revenue was up by 7% to GBP 15,729m, and underlying revenue increased by 8% to GBP 15,067m, driven by Civil Aerospace and Power Systems. Underlying gross profit was up by 4% to GBP 2,256m with a gross margin of 15.7%, led by increased spare engine volumes and reduced widebody OE engine losses. Reflecting 20% growth in Power Systems to GBP 317m, due to strong volume growth, underlying core operating profit saw a material GBP 224m improvement on prior year to GBP 633m, while underlying operating profit was up by GBP 253m to GBP 616m. The company's reported operating loss for the FY18 stood at GBP 1,161 million against operating profit of GBP 366 million in FY17. The operating loss incurred because of the significant increase in the company's commercial and administrative costs. The loss for the period stood at GBP 2,393 million for FY18 against Profit for the period of GBP 3,383 million in FY17. Basic loss per share stood at 129.15 pence in FY18 as compared to 184.41 pence in FY17.

Financial Ratios

During the FY18, the group's EBITDA margin stood at 10%, which was 100bps above the EBITDA margin recorded in the year-ago period. However, at the operating level, the group reported a negative operating margin against 7.8% operating margin recorded in the FY17. Liquidity position in terms of the current ratio improved marginally against the previous year and stood at 1.13x. Net Debt to EBITDA ratio of the group for FY18 stood at 0.09, which was considerably below the industry median of 0.32 and also plunged considerably against 0.44x reported in FY17. Average inventory days of the group stood at 101.9, relatively below the industry median of 118.6 days.

Stock Information

Daily price chart (as on June 20, 2019), before the market close. (Source: Thomson Reuters).

At the time of writing (before the market close at 12:08 PM GMT), shares of the RR were quoting at GBX 911.6 and added 9.80 points or 1.08% against the previous day closing price. In today’s session, before the market close, shares of RR have touched a high of GBX 920.60 and a low of GBX 909.20.

The outstanding market capitalisation of the group stood at £17.39 bn, which ranks it among the large-cap companies listed on the London Stock Exchange. Its shares are the constituent of FTSE 100, FTSE 350 and FTSE All-Share indices. As on May 23, 2011, its shares got listed to the main market of the London Stock Exchange for trading.

52wk High/Low range

In the past 52wks, shares of RR have registered a high of GBX 1,089.99 and a low of GBX 741.25, and at the current trading level, the stock is quoting nearly 16.7% below the 52wk high price level and trading 22.5% above the 52w low price level.

Price Performance (%)

On a year-to-date basis, the stock has surged nearly 10.2%, however, in the past one month, the stock has fallen nearly 3%.

In the last one month, its shares have ended 12 times up and 10 times down against their respective closes.

Volume Summary

The 5-day average daily volume in the stock stood at 3,537,751.40, which was approximately 18.05% below the 30-day average daily volume traded on the London Stock Exchange. In today’s session, before the market close, total volume in the stock stood at 580,462 with 1,436 traded took place.

Simple Moving Average (SMA)

From the SMA standpoint, shares of the RR were quoting above the 30-day, 60-day and 200-day SMA prices, which is a positive technical indication in the stock and suggests that stock carrying potential to move up from the current trading levels.

Relative Strength Index (RSI)

The 30-day,14-day and 9-day RSI of the stock hovering in the neutral region and strengthen the upside movement.

Bollinger Band®

At the current trading level, Upper Bollinger Band® of the stock stood at GBX 922.35, lower Bollinger Band® stood at GBX 856.81 and 20-day simple moving average of the stock stood at GBX 889.58, which indicates the stock is trending towards the upper band and carrying potential to move up further from the current trading levels. Also, the daily RSI is strengthening the upside move, as it is hovering in the neutral zone.

The above discussed technical measures indicate the overall trend in the stock is positive.