Covid Turmoil: Rolls Royce (LON: RR.) Loses Half of Its Market Cap In 2020!

Summary

• Shares of Rolls Royce Holding Plc have been one of the biggest wealth destroyers among the large-cap FTSE 100 stocks in 2020
• The stock of Rolls Royce has crashed more than 50 per cent in 2020
• The London-headquartered defence and aerospace equipment manufacturer has been adversely affected by the reduced demand on the back of the global health emergency.

The catastrophic fallout of the coronavirus pandemic has engulfed most of the small-to-large scale corporations in the United Kingdom with some of the entities even forced to cut down on the operations partially. The prospective downsizing of the workforce to a reduction in existing functions was primarily done to effectively increase the overall operating efficiency.

The London-headquartered defence and aerospace equipment manufacturer Rolls Royce Holdings Plc (LON: RR.) has been one of the victims among the various large-scale enterprises of the United Kingdom that had been adversely affected by the reduced demand on the back of the global health emergency. The century-old automobile conglomerate witnessed one of the worst years since the 2008 subprime mortgage crisis, as far as the stock market performance is concerned.

Market capitalisation halves

Shares of Rolls Royce Holdings Plc have not been able to mark a meaningful recovery in 2020 after recognising multi-year lows during the Covid-steered stock market collapse in March-April.

According to the latest data available with the London Stock Exchange, the stock of Rolls Royce has slipped more than 50 per cent in the 12-month stretch, making it one of the biggest wealth destroyers among the heavyweight constituents of the benchmark FTSE 100 index.

Rolls Royce share price has fallen as much as 52.21 per cent to GBX 112.05 (30 December 2020) from a market price of GBX 234.45 apiece as on 31 December 2019.

Rolls Royce shares (YTD)

(Source: Refinitiv, Thomson Reuters)

Considering the share price of GBX 112.05, Rolls Royce commands a present market capitalisation of £9,375.89 million as compared to a market capitalisation of nearly £19,617.83 million as on 31 December 2019.

On the contrary, the headline FTSE 100 index has declined a little more than 13 per cent in the similar period. On a year-to-date (YTD) scale, FTSE 100 contracted 986.62 points or, 13.08 per cent to 6,555.82 (30 December 2020) from a level of 7,542.44 as on 31 December 2019.

FTSE 100 (YTD)

(Source: Refinitiv, Thomson Reuters)

Road ahead

Rolls Royce seemed to have developed a comprehensive strategy, architecting a blueprint that can bolster the company’s presence in the market after the massive value erosion during 2020. Recently in December itself, Rolls Royce said the company is aiming to deliver the targeted £1.3 billion cost savings by the year 2022, maintaining the previous guidance. According to Rolls Royce, the company can recognise a positive cash flow during the second half of 2021 with the defence division having a strong order book for 2021.

The company is targeting to realise a cash flow of at least £2 billion from the proceeds of disposals and at least £750 million, excluding the disposals, by 2022, Rolls Royce said in a regulatory filing.

Furthermore, Rolls Royce expects that the £5 billion funding package is likely to support the long-term strategy of the enterprise alongside strengthening the balance sheet. In the H1 2021, a slow-paced improvement is expected in the commercial air travel, while there is a likelihood of recovery in the H2 2021 following the continuation of vaccine programmes, Rolls Royce had said.

The company had signed an agreement in December with regard to the sale of disposals including the civil nuclear instrumentation. Among the other disposals that have been under consideration by the company include Bergen Engines, medium speed gas and diesel engines business and ITP Aero. As per Rolls Royce, the transaction of sale of disposals is likely to be completed in the H2 2021.