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Rolls-Royce Holdings PLC (LSE:RR) has faced a significant adjustment in the valuation of Reaction Engines, a company it supports, following recent changes by two prominent UK fund managers. The adjustments reflect growing concerns that Reaction Engines may require more time and additional resources to achieve financial stability.
Reaction Engines, known for its development of ultra-high-speed engines and often referred to as the new Concorde, saw its book value substantially reduced. Schroders, managing a 4.1% stake in Reaction Engines, has cut the value of its investment by 87%, revising it from £10.6 million in December to £1.4 million. Similarly, Artemis, which holds a 2.3% stake, has decreased the valuation of its investment by around 75%. Confirmation from the Artemis Alpha Trust regarding this adjustment is anticipated soon.
At these revised valuations, Reaction Engines, which also receives support from BAE Systems and the government, would be valued at approximately £34 million, a sharp decline from £256 million reported in a recent funding round.
Schroders attributed the revised valuation to slower-than-expected revenue growth despite efforts to commercialize its heat exchanger technology and recent contract achievements. The company will likely need additional financial backing and time to become cash-flow positive.
Reaction Engines is focused on developing a revolutionary engine capable of speeds up to 19,000 mph, potentially reducing the travel time from Britain to Australia to four hours. Central to this development is a cutting-edge pre-cooling technology designed to prevent the engines from overheating.
In response to the financial challenges, Reaction Engines has engaged advisers to seek further funding from both new and existing sources, with Rolls-Royce indicated as being involved in these discussions. Additionally, BAE Systems has tested the company’s technology on naval vessels to manage waste heat and cool exhaust systems.
Schroders’ adjustment in valuation followed its acquisition of the Woodford Patient Capital Trust, which was an early backer of Reaction Engines. This significant reduction underscores the growing challenges faced by the company in its path toward achieving commercial viability and profitability.
