Rolls-Royce’s impressive growth and revenue surpass predictions

The company is going through a comprehensive transformation to accelerate growth in the forthcoming years

By Raed Alkhedr | @raedalkhedr | 11 April 2023

  • Rolls-Royce’s most recent quarterly earnings report reveals underlying profits of £652 million in 2022 with the revenue outperforming analysts’ expectations by 8.6%

  • The revenue is predicted to grow annually by 4.8% over the next three years with the help of strategic transformation initiatives in the company

  • After the announcement, the Rolls-Royce's stock price experienced a 23% elevation

Rolls-Royce reports remarkable results for 2022

The esteemed British multinational engineering company Rolls-Royce has announced strong financial results for the previous year, which exceeded experts' forecasts. The firm's revenue exceeded analysts' predictions by 8.6%, boosted by the civil aviation and energy systems sectors.

The company registered £652 million ($786 million) in underlying profits, an increase of £238 million compared to the prior year.

Rolls-Royce's free cash flow from ongoing operations rose by 2 billion in 2022, resulting to £505 million. The organisation attributes these favourable results to the recovery in international travel demand, highlighting a 35% increase in yearly flight hours for large engines in the civil aviation segment.

Though Rolls-Royce has no plan to pay dividends for the 2022 financial year, it has committed to reinstating investment-grade credit ratings and resuming practices without specifying a timeline.

Strategic transformation to boost growth

Rolls-Royce is undergoing a comprehensive transformation program to enhance its performance in 2023. The transformation is led by Tufan Erginbilgiç, former CEO of BP, who succeeded Warren East in January. This program encompasses a strategic assessment with Rolls-Royce anticipated to reveal its mid-term objectives during the second half of the year.

Revenue is expected to grow by 4.8% per annum over the next three years, compared to UK aviation and aerospace sector growth expectations of 7.3%. The firm anticipates a sustained recuperation in their end markets and additional revenue surges in 2023. They issued an operating profit guidance ranging from £0.8 billion to £1 billion and revised cash flow expectations varying between £0.6 billion and £0.8 billion.

Rolls-Royce's impressive financial performance bodes well for the company and the aviation industry in general as they recover from the immense pressure experienced during the COVID-19 pandemic. The company's strategic transformation initiative and comprehensive review will be instrumental in preserving this positive momentum and fostering future expansion.

Rolls-Royce’s stock performance and critical thresholds

Rolls-Royce’s stock price suffered a sharp fall amid the COVID-19 crisis in 2020, falling from $240.00 to $35.00. The stock has recovered from this drastic fall and is currently trading near the $150.00 resistance level.

Following the most recent quarterly earnings report and its positive results, the company's stock ascended by 23%.

The $150.00 level has been a strong resistance level for the stock, as it has attempted to test it multiple times over the past three years but has faced declines and failed to maintain stability above it. If the stock price remains above the $150.00 level, there is a possibility that it may rise and test the $175.00 resistance level. Breaking through that level could contribute to further rise to the $270.00 level.

However, if the stock fails to break through the $150.00 resistance level, it’s possible to see a decline to test the support levels of $110.00 and later the support level of $85.00. Therefore, surpassing the $150.00 resistance level and maintaining prices above it is crucial for the stock to indicate an intention to rise.