Rolls-Royce Disposal Raises Questions Over Balance Sheet
Comment of the Day

September 01 2020

Commentary by Eoin Treacy

Rolls-Royce Disposal Raises Questions Over Balance Sheet

This note from Dow Jones may be of interest to subscribers. Here is a section:

Rolls-Royce's GBP2 billion disposal announcement is materially more than what the market had in mind, and may imply a lower need for fresh equity to repair its balance sheet, Credit Suisse says. This raises questions as to whether the company was waiting for things to improve before a rights issue or taking the risk of seeing things get worse, the Swiss bank says. The lack of visibility on the balance sheet rebuild, persistent volatility in forecasts and the unattractiveness of the underlying investment case mean the stock remains unappealing for many investors, CS says. The bank has an underperform rating on the stock, and lowers the target price to 200 pence, from 210 pence. Shares are down 9% at 219.40 pence.   

Eoin Treacy's view

As a major plane engine supplier Rolls Royce has been significantly negatively impacted by the Boeing 737 Max debacle. As if that were not enough the collapse in air traffic and cancellation of orders for new planes has been a double blow. The share is down more than 80% since early 2019 and made a new low today.

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