Most investors remain fixated on what’s going on in Capitol Hill. That includes the multiple, trillion-dollar infrastructure packages being prepared to the looming possibility that the government needs to raise the debt ceiling again. While that’s the primary focus point of investors and traders going into this week, there were a few company’s that made waves over the weekend. One of those was Rolls-Royce (OTC: RLLCF), whose shares shot up after a couple of major announcements were made.
The first big piece of news had to do with Rolls-Royce’s Spanish business unit. The company announced it was selling the Spanish ITP Aero business to a consortium of private companies, led by U.S. private equity giant Bain Capital. The deal, which is valued at around $2.5 billion USD, or 1.7 billion Euros, is expected to take place sometime in the first half of next year. ITP Aero produces turbine blades and brought in profits of just 40 million euros last year on revenues of over 735 million. Management decided it was better to sell off the low-margin business than try to turn it around.
“Today’s announcement is a significant milestone for our disposal programme as we work to strengthen our balance sheet, in support of our medium-term ambition to return to an investment-grade credit profile,” said Warren East, Rolls-Royce CEO, in a statement. “The creation of an independent ITP Aero is a great opportunity for the company, its people and other stakeholders. It will remain a key strategic supplier and partner for decades to come.”
It’s a good deal for Rolls-Royce as the company has been struggling, especially since the pandemic. Unlike other companies in the aviation industry, Rolls-Royce is paid on the number of hours flown by any aircraft that uses its engines. Therefore, when airlines were cutting flights due to a lack of demand, Rolls-Royce’s business model was hurt even more than a normal aviation engine manufacturer.
The other good piece of news for the company came domestically. The U.S. air force had picked Rolls-Royce to provide engines for the force’s B-52 Stratofortress bombers. The total contract could be worth over $2.6 billion over the next 30-years, which would mean a lot for the previously struggling company.
Shares of Rolls-Royce were up more than 18.5% following the two pieces of news. Since the year began, Rolls-Royce has stayed more or less below where it first started in 2021. After seeing a massive price jump in December, the stock has failed to come back to its previous heights. Most analysts covering the stock nowadays remain largely cautious about the British-based company. Five analysts are currently bullish, whereas nine are neutral, and five are bearish.
Rolls-Royce Company Profile
Rolls Royce operates three core business segments: civil aerospace, power systems, and defense. The civil aerospace segment builds engines powering wide-body aircraft, regional and business jets, and offers aftermarket services. Twenty years ago, the firm pioneered full-service flight hour contracts with the TotalCare package. Power systems provides power solutions to multiple end markets (defense, agriculture, marine, and power generation) while the defense business provides military, ground vehicle and naval propulsion solutions. – Warrior Trading News
