Email of the day the on Rolls Royce rights issue
Comment of the Day

October 29 2020

Commentary by Eoin Treacy

Email of the day the on Rolls Royce rights issue

RR shares finished the day at 84.54p whilst the newly issued rights finished at 51p.

When adding back the 10/3 of 51p to the share price of 84.54p, the result is 254p which is a very nice gain from the news of your first purchase at 154.75 p you gave the collective early October (your second purchase being adroitly at 105p). Thank you for advising us!


Yesterday you wrote regarding RR  "...The knock-on effect of the rights issue could result in the share falling between 25% and 33% which may be priced into shares over the coming two weeks..."

Three interrelated questions:

1. Do you mean by this that the share price of 84.75 could go down to 57p (-33%) to 64p (-25%) which would be equivalent to the "old share price" coming down from today's 254p to 170p?

2. What would be the reason for this heavy decline - all endogenous factors should already be priced assuming a efficient pricing...

3. If such a decline is probable would it not make more sense to take good profits and then, if the share really comes down or stays where it is, and the turn-around story still seems valid, buy again a lower or more or less unchanged price?

It seems to me that from a risk-adjusted perspective, this would be the better action.


Dear Mr. Tracey,
Rolls Royce web site states for shareholder living in USA:
" Due to local regulations the rights issue cannot be offered in your country. We will arrange to try and sell your rights to new ordinary shares for you, and you will be sent the profit (after expenses) if it is £5 or more."
would elaborate on this process for those of us who are not familiar with it.
Many thanks for your great service.

Eoin Treacy's view

Thank you both for these questions. The share was rebased yesterday and halved as a result of the rights issue. It subsequently rebounded from its lows because many investors were waiting for the uncertainty of the rebasing to pass before initiating long positions. The question now is what happens next.

First off, I called Rolls Royce this morning and the rights of US investors will be sold on November 5th. I bought my position through my UK accounts so was able to avail of the rights directly.

The share paused at 100p yesterday and some consolidation of recent gains appears likely. I have no intention of selling the share. I bought it as an investment on the assumption we are at the peak of coronavirus hysteria. If that conclusion is correct then it can only get better from here.

I believe there will be widespread availability of treatments and vaccines within six months. As the travel sector comes back, Rolls Royce is a play on miles flown due to its service contracts. Meanwhile geopolitical tensions and the evolving race to develop hypersonic weapons and travel represent optionality. 

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