Rolls-Royce Looks Poised For Continued Success

The group’s civil aerospace division supplies engines for 30 types of commercial aircraft and contributes about a third of its operating profits.

Its marine division provides power and propulsion systems for offshore oil and gas, merchant and naval vessels and contributes a similar proportion of profits, while defence, the world’s second largest provider of defence aero-engine products, generates just under a third of the firm’s earnings.

Although relatively small in terms of group profits, Rolls-Royce’s energy division is a world leader in onshore and offshore oil and gas, while building its civil nuclear capabilities.

The group’s civil aerospace division supplies engines for 30 types of commercial aircraft and contributes about a third of its operating profits

The company’s recent full-year results showed record revenues, profits and orders and illustrated the solid pillars on which Rolls-Royce’s success is built.

First, it has established excellent diversification in the markets in which it operates. Second, Rolls-Royce has worked hard to develop its after-sales business. Its civil division sells 90 per cent of new engines under long-term contracts. Third, its civil aerospace exposure is skewed towards wide-body planes rather than the narrow-body planes which competitors serve. These larger jets have wider profit margins and more stable order backlogs.

While there are several factors that could damage the company’s prospects, such as greater than expected defence cuts, Rolls-Royce has a great fundamental story. The combination of a good balance sheet, a growing dividend, solid management and a reasonable valuation has led to the excellent recent share price performance.

http://www.express.co.uk