The turnaround story for Rolls Royce is incredible

somerandomusername · 6 January at 2:11PM

I feel like a documentary should be made about how this stock went from £2.3b market cap on the brink of bankruptcy to a £100b powerhouse in just 5 years.

Honestly this wasn't just a "covid pandemic recovery" like most stocks, this was a revolutionary turnaround that we only really see once in a life time. I can't think of any other companies that came this close to bankruptcy and made such a stunning turn around in such a short period of time.

The CEO that took over must be insanely good. Rolls Royce was on the down turn all the way back since 2014 dropping 50% in market cap before covid. Then covid sunk it to -92% and they were forced to do a massive rights issue to try and raise £2b to stay afloat.

Fast forward 5 years later, the market cap is now £103billion, that's a 3000% return in 5 years, but even if we ignore the covid crash and use the price just before covid, it's still up 425%.

Image: https://us-noi.v-cdn.net/6031891/uploads/editor/ar/qfip8x554557.png

Like I said it wasn't just a covid recovery, it was a huge overhaul of the company, stripping out dead contracts, mass redundancies, cutting costs everywhere, streamlining manufacturing etc. They really should make a documentary about how Rolls Royce survived from the brink and made one of the best comes backs in British history.

Woodstok2000 · 6 January at 2:23PM

Welcome to the forum Mr Tufan Erginbilgiç, hope you enjoy your bonus!

Woodstok2000 · 6 January at 2:30PM

But in seriousness, it is a great story. I'd argue your overstaying their troubles pre-covid, as by end of 2019 their results showed strong underlying performance with increased operating profit and significant free cash flow driven by improvements in Civil Aerospace and Power Systems. This is despite ongoing Trent 1000 engine costs; and their underlying metrics pointed to solid growth and confidence for 2020.

So I'd argue the downturn was almost entirely covid impact, but it's still a stunning turnaround, and a great example of corporate leadership.

Section62 · 6 January at 3:23PM

somerandomusername said:

The CEO that took over must be insanely good.

Or just very lucky to take over at the right time.

somerandomusername said:

Rolls Royce was on the down all the back since 2014 dropping 50% in market cap before covid. Then covid sunk it to -92% and they were forced to do a massive rights issue to try and raise £2b to stay afloat.

There were reasons for that. Defence budget cuts. Technical problems with Trent engines. Then Covid making the airline industry go into meltdown.

It needs to be understood that RR is as much a service provider as a manufacturer. If the engines you lease to others and/or get paid to maintain are not working (either through faults or lack of demand) then it can rapidly dent your income. Liabilities for defective products can be eyewatering when the unit cost is in the tens of millions.

Although it doesn't look like the demand for defence products will abate any time soon, the fragility of the airline industry should remain a cause for concern. And lets hope the promise of SMRs gets delivered.