Author Topic: RR - Rolls-Royce  (Read 83625 times)

Alex.N.B

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RR - Rolls-Royce
« on: April 22, 2015, 05:13:27 AM »
Seems like the company has performed rather poorly over the last two years.

Ruane Cunniff was a big holder for a while and talked about the poor corporate governance and diversification strategy in their latest annual letter:
http://www.sequoiafund.com/Reports/Annual/Ann14.pdf

It seems like they have a great jet engine/civil aviation business and it could be possible that the market is not properly valuing the company at this point as a result of its "conglomerate" structure. 

RR also recently won some new contracts with Emirates:

Rolls-Royce wins $9.2B order from Emirates for Trent 900 engines, support Rolls-Royce (RYCEY) has won its largest ever order, worth $9.2B, to provide Trent 900 engines and TotalCare service support to Emirates. The engines will power 50 Airbus (EADSY) A380 aircraft that will enter service from 2016.


With the recent CEO change, wanted to see if anyone had any thoughts on the company going forward / any insights on the new CEO / current valuation?

http://www.bloomberg.com/news/articles/2015-04-22/rolls-royce-names-east-as-new-ceo-amid-investor-discontent

« Last Edit: July 20, 2015, 03:32:27 PM by Parsad »


Cunninghamew

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Re: RR/ Rolls-Royce
« Reply #1 on: April 22, 2015, 06:02:57 AM »
We looked at it and like the basic thesis - RR sells engines up front at low to no margin and then picks it up over the life of the engine via total care contracts. They have a good investor day presentation on the total care contract.

Unfortunately, we couldn't get a good feel for the future cash flows they will generate from the total care agreements.

If someone has figure out the exact economics would love to learn from your research

kab60

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Re: RR/ Rolls-Royce
« Reply #2 on: April 22, 2015, 06:43:06 AM »
I believe it's a pretty big position for Sequoia Fund and they compared it a bit to Precision Castparts in a letter to investors I seem to recall. I took a look at RR when it was lower than today but the business was too complex for me to come up with much of a valuation range (I'm still very much a rookie).

muscleman

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Re: RR/ Rolls-Royce
« Reply #3 on: April 22, 2015, 07:44:37 AM »
I remember RR was mentioned in longleaf partner's recent letter. They said the change in CEO was by the board to aggressively push EPS up. The new CEO wasn't good and decided to expand into marine engines sector. I can't totally remember that though. You can look it up and see if it helps.

A Dhandho Investor

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Re: RR/ Rolls-Royce
« Reply #4 on: April 22, 2015, 08:22:21 AM »


Phaceliacapital

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Re: RR/ Rolls-Royce
« Reply #6 on: July 20, 2015, 12:32:44 AM »
[Delayed] Rolls-Royce Holdings   RR.    Rolls-Royce Trent 700 Worth $930m Selected By IAFC
2015-07-20 07:02:18.810 GMT



  Rolls-Royce Holdings (RR.) - Rolls-Royce Trent 700 Worth $930m Selected By
  IAFC

RNS Number : 4344T
Rolls-Royce Holdings plc
20 July 2015

                                                                  20 July 2015

ROLLS-ROYCE TRENT 700 ENGINES WORTH $930M SELECTED BY INTERNATIONAL AIRFINANCE
                                 CORPORATION

 

Rolls-Royce has been selected by International AirFinance Corporation (IAFC) to provide Trent 700 engines, worth $930m, for 20 Airbus A330 Regional aircraft.

The Trent 700 is the clear market leader on the A330 with more than 60 per cent of new orders over the last three years. The Trent 700 now accounts for
90 per cent of A330 freighters in service and on order

Moulay Omar Alaoui, International AirFinance Corporation, President and CEO,
said: "We selected the Trent 700 as the best solution in terms of economics and reliability."

Eric Schulz, Rolls-Royce, President - Civil Large Engines, said: "We welcome our customer's confidence in the Trent 700 as the best solution for fuel burn, emissions and noise performance as well as delivering unrivalled reliability for Middle East operations."

More than 1,500 Trent 700s are now in service or on firm order, making it the largest in-service Trent engine.

About Rolls-Royce Holdings plc

1.   This Original Equipment order will result in an increase in the Group's order book of $930m, in accordance with Group accounting policy and is linked to the TotalCare® order announced today. The value of the contract is consistent with the disclosures set out in the recent market update issued by Rolls-Royce Holdings plc on 6 July 2015.

2.   Rolls-Royce's vision is to create better power for a changing world via two main business divisions, Aerospace and Land & Sea. These business divisions address markets with two strong technology platforms, gas turbines and reciprocating engines. Aerospace comprises Civil Aerospace and Defence Aerospace. Land & Sea comprises Marine, Nuclear and Power Systems.

3.   Rolls-Royce has customers in more than 120 countries, comprising more than 380 airlines and leasing customers, 160 armed forces, 4,000 marine customers including 70 navies, and more than 5,000 power and nuclear customers.

4.   Our business is focused on the 4Cs:

·      Customer - placing the customer at the heart of our business

·      Concentration - deciding where to grow and where not to

·      Cost - continually looking to increase efficiency

·      Cash - improving financial performance.
 

5.   Annual underlying revenue was £14.6 billion in 2014, around half of which came from the provision of aftermarket services. The firm and announced order book stood at £73.7 billion at the end of 2014.

6.   In 2014, Rolls-Royce invested £1.2 billion on research and development.
We also support a global network of 31 University Technology Centres, which position Rolls-Royce engineers at the forefront of scientific research.

7.   Rolls-Royce employs over 54,000 people in more than 50 countries. Over
15,500 of these are engineers.

8.   The Group has a strong commitment to apprentice and graduate recruitment and to further developing employee skills. In 2014 we employed 354 graduates and 357 apprentices through our worldwide training programmes. Globally we have over 1,000 Rolls-Royce STEM ambassadors who are actively involved in education programmes and activities; we have set ourselves a target to reach 6 million people through our STEM outreach activities by 2020.
The harder you work, the luckier you get.

Arden

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Sol Arden

muscleman

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Re: RR - Rolls-Royce
« Reply #8 on: July 29, 2015, 08:22:21 AM »
Interesting writeup on seeking alpha
http://seekingalpha.com/article/3311125-rolls-royce-recent-dip-is-an-opportunity-long-term-outlook-remains-intact

It is really hard to understand the profitability here.
http://www.rolls-royce.com/news/press-releases/yr-2015/pr-29-07-2015-rr-signs-580m-totalcare-engine-support-agreement-with-vietname-airlines.aspx

340M Pounds for 14 engines. That's 24 M per engine. Assuming a 20% profit margin, it will be 4.8 M per engine profit. How long is this total care contract? 10 years? 20 years? That can change the valuation drastically. Does anyone know?

Assuming it is 10 years contract. Each year it will make 0.48 Million pounds per engine. There are 1500 engines sold. So that's 740 Million pounds per year profit. Giving it a 10 PE, and we get 7.4 Bn valuation. Today's market cap is 13 bn.

Is my assumption reasonable? Of course they have other lines of businesses, but not that profitable. It puzzle me as to why the author claims it is way undervalued.

Arden

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Re: RR - Rolls-Royce
« Reply #9 on: July 29, 2015, 11:18:29 AM »
Interesting writeup on seeking alpha
http://seekingalpha.com/article/3311125-rolls-royce-recent-dip-is-an-opportunity-long-term-outlook-remains-intact

It is really hard to understand the profitability here.
http://www.rolls-royce.com/news/press-releases/yr-2015/pr-29-07-2015-rr-signs-580m-totalcare-engine-support-agreement-with-vietname-airlines.aspx

340M Pounds for 14 engines. That's 24 M per engine. Assuming a 20% profit margin, it will be 4.8 M per engine profit. How long is this total care contract? 10 years? 20 years? That can change the valuation drastically. Does anyone know?

Assuming it is 10 years contract. Each year it will make 0.48 Million pounds per engine. There are 1500 engines sold. So that's 740 Million pounds per year profit. Giving it a 10 PE, and we get 7.4 Bn valuation. Today's market cap is 13 bn.

Is my assumption reasonable? Of course they have other lines of businesses, but not that profitable. It puzzle me as to why the author claims it is way undervalued.

I asked the article's author about totalcare revenue recognition today, he wrote:
"The company does not provide much detail on how revenue is recognized from TotalCare agreements. Given that, it is hard to give you an answer."

On the subject of pricing, he goes more into it in his previous article:
http://seekingalpha.com/article/3266845-rolls-royce-the-goose-has-laid-the-golden-engine
Sol Arden