ROLLS-ROYCE

Buy into Investor day 19th June

 

• Down 19% this year, hurt mainly by disappointing final results for 2013.
• Investor day provides the opportunity for management to restore confidence. No one expects to be blown away by them but some form of control and a continued sensible M&A strategy coupled with news on buybacks and the dividend will go a long way.
• Yesterdays Emirates blow and JPM’s bearish note provides a good entry point. The announcement to scrap 70 Airbus A350s (dented the order book ~3.5% or £2.6b). RR/ is confident this capacity will be taken by other airlines.
• A cancellation of 70 orders is relatively insignificant in relation to its total order book of 5,500 and although disappointing does not change its improving earnings trajectory.
• Market has had concerns that they would only see top line positive growth by 2015 as mentioned in a broker note yesterday. The company has been calling round today saying they expect top and bottom line growth which would be a big positive.
• At these levels the risk/reward offers significant upside into the investor day and would be happy to own them anywhere below 1025.