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The countries across the world are extending financial help to sustain their drowning sectors. Some of the recent aids are as follows:
- Fed prolonged help to Small and Medium size enterprises. It has reduced the minimum loan amount and raised the maximum loan limit. The loan term has been increased to five years, and repayment of principal will begin after two years.
- France extends financial stimulus of €15 billion to its aerospace sector. In May, France gave a public aid of €8 billion to French automobile sector.
- The French government will provide Air France with a state loan of €3 billion and a state guarantee on bank loans for €4 billion.
In this article, we will cover two LSE listed stocks - Rolls Royce Holdings PLC (LON : RR.) and Aston Martin Lagonda Global Holding PLC (LON : AML). As on 10th June 2020 (before the market close at 2.20 PM GMT+1), Rolls Royce’s stock lost over 6.14 per cent, while the AML lost around 2.66 per cent. The recovery in demand in Roll Royce’s Aerospace segment is expected to be slow even after the restriction on air travel curbs. We need to watch out the bounce back in demand for luxury car market as it will be vital for Aston Martin.
Rolls Royce PLC (LON: RR.) - The global airline sector is temporarily crippled by the Covid-19 pandemic, and even Rolls Royce is not left untouched.
Rolls Royce PLC is a UK based FTSE 100 listed company. The company offers business services in Civil Aerospace, Power Systems, Defense, and ITP Aero.
- Civil Aerospace: Manufactures aero engines for large commercial aircrafts, regional jets and business aviation markets.
- Power Systems: Leading provider of high-speed and medium-speed engines and power generation systems. It has a leading demand in power generation and the Marine sector.
- Defense: Provides services to military transport, combat fighters and submarines.
- ITP Aero: Global leader in aero-engine design, manufacture and maintenance.
(Source: Company Website)
Business Performance (as per the update on 7th May 2020)
- The Civil Aerospace business, which represents more than 50 per cent of the company’s business is hard hit. There is a general drop in demand for new engines and maintenance, repair and overhaul (MRO) of existing engines. In line with the inactivity in the air traffic capacity and drop in demand, the company expects to deliver around 250 wide body engines in 2020, from its previous guidance of 450 to its airframe customers. The MRO volumes are also to below 2019 levels as majority of the airplanes are grounded.
- The Power System performance in 2020 is expected to be bleak as the pandemic has impacted company’s industrial customers such as oil & gas and mining, temporary closure of several yacht production facilities as well as a lower service activity.
- The Defense business has witnessed robust growth during the pandemic and company does not plan, any headcount reduction in the segment.
Revenue by business FY2019
(Source: Company Website)
Liquidity Position
At the end of Q1 2020 company fully withdrew its £2.5 billion revolving credit facility and secured an additional revolving credit facility of £1.5 billion which will strengthen its liquidity position. The cash balance was £5.2 billion at the end of Q1 2020. The combined total liquidity of the company was £6.7 billion. The company has an outstanding debt of £500 million in the second half of 2020. The company has ample cash available to meet its commitment.
Latest actions for cost-saving (as on 20th May 2020)
- Rolls Royce has announced a cut of 9,000 jobs that translates to 17.3 per cent of its total workforce of 52,000 due to major slump in demand in its Civil Aerospace business.
- The company also plans a major slash in capital expenditure. The proposed rejig is expected to have an annualized cost savings of more than £1.3 billion, of which headcount reduction is expected to be £700 million. The cash restructuring costs of £800 million is likely to be expensed across 2020 to 2022.
Share Price Performance Analysis
(Source: EODHD/Others, Thomson Reuters) -1-Year Chart as of 10th June 2020, before the market close
Rolls-Royce Holdings PLC’s shares were hovering at GBX 377.845 on 10th June 2020 (before the market close at 7.19 AM GMT+1). Rolls Royce PLC’s 52 weeks High and Low are GBX 924.31 and GBX 235.50 respectively. The total market capitalization of the company was GBP 7.14 billion.
Business Outlook
The demand for aerospace segment is expected to be bleak in FY2020 as the uncertainty remains over the opening of economies and airlines resuming 100 per cent operation. However, the demand from the Defense sector will make up for some portion of the order book.
Covid-19 Update - On the social front Rolls Royce is a member of the ‘VentilatorChallengeUK’ Consortium. Companies from the automobile, aerospace and medical sectors are working to increase ventilator supply in the UK. Rolls Royce is providing parts in the assembly plants.
Aston Martin Lagonda PLC (LON:AML): Change in top leadership – Mr. Tobias Moers to take over as new CEO of Aston Martin
Aston Martin Lagonda PLC (LON:AML) - Aston Martin is a UK based global automotive company, which is involved in designing, engineering, and manufacturing of luxury cars. The automotive segment includes activities such as Sale of Vehicles, Sale of Parts and Servicing of vehicles.
1Q 2020 Trading Update (as on 13th May 2020)
In Q1 2020 (for the period ended 31st March 2020), sales declined across all markets, company reported revenue of £78.6 million and dipped 60 per cent YoY. At the end of 1Q 2020 company had a net debt of £956.1 million. Company has opened its St Athan manufacturing facility in May, and all company retail stores have re-opened in China. The company is currently focusing on bringing down inventory lying with the dealer. The company de-stocked 428 units in Q1 2020.
(Source: Company Website)
Management Reorganization
- Company’s leadership is going to change as Mr. Tobias Moers will replace Dr Andy Palmer as the new CEO of the company starting Aug 1, 2020. Mr. Tobias is currently Board Chairman and CEO of Mercedes-AMG GmbH.
- Mr. Lawrence Stroll appointed as Executive Chairman.
- William Tame and Michael de Picciotto join Aston Martin’s board. William Tame will represent Prestige Group and Michael de Picciotto will represent Yew Tree Consortium on Aston Martin’s board.
Recent Developments
- COVID-19 pandemic has posed new headwinds for Aston Martin which was already struggling and had restricted liquidity. In order to safeguard near term future of the business, the company raised £536 million capital in Q1 FY20. The company issued Rights Share of £365 million and £171 million was raised from Lawrence Stroll-led consortium.
- The senior leadership of the company has taken a pay cut of 35 per cent and will not participate in FY20 bonus.
Share Price Performance Analysis
(Source: EODHD/Others, Thomson Reuters) -1-Year Chart as of 10th June 2020, before the market close
AML’s shares were hovering at GBX 80.50 on 10th June 2020 (before the market close at 7.21 AM GMT+1). Aston Martin’s 52 weeks High is GBX 353.13 and Low is GBX 27.50. Total outstanding market capitalization was GBP 1.20 billion.
Business Outlook
The outlook remains uncertain for the supply chain and customer demand globally. Aston Martin is resetting its future strategy with a change in leadership and taking restrictive measures. However, overall pickup in demand in the luxury car will be key to the company’s future performance.
