Rolls-Royce downgraded by Credit Suisse as engine maker cuts 9000 jobs

The engine maker faces scrutiny over job cuts amid travel slump and analysts from Credit Suisse downgrade the stock as Covid-19 continues to takes its toll on the aviation industry.

Rolls-Royce plans to cut at least 9000 jobs as the Covid-19 crisis continues to weigh heavily on it, the aviation industry and the wider UK economy.

The engine maker also said it will close factories in expectation of weaker demand during, and in the wake of the pandemic.

The cost-cutting measures outlined by Rolls-Royce were welcomed by investors, with the stock trading 5% higher on Wednesday to 283p per share as of 15:00 (GMT) on Wednesday.

‘We have to reduce our cost base and adapt to the new world, matching our capacity with expected demand,’ Rolls-Royce CEO Warren East told reporters.

Rolls-Royce employs around 52,000 people worldwide, with the 9000 job losses largely impacting its civil aerospace unit, which is responsible for more than 50% of its total revenues.

The reduction in head count is part of wider cost-cutting efforts by the company, which is targeting £1.3 billion in annual savings.

Credit Suisse downgrades Rolls-Royce amid Covid-19 crisis

Analysts from Credit Suisse downgraded their rating for Rolls-Royce from ‘outperform’ to ‘underperform’ in May and lowered the target price for the stock to 245p per share, implying a potential downside of -13.4%.

However, analysts from JP Morgan have taken a particularly dim view of the engine maker this month, with the US-based investment bank reiterating its ‘underweight’ rating and lowing its target price to 125p per share – a downside of -55.8%

Trade union labels Rolls-Royce job cuts ‘shameful’

British trade union, Unite, has labelled Rolls-Royce’s planned job cuts and factory closures ‘shameful opportunism’ amid the coronavirus pandemic.

‘The news that Rolls-Royce is preparing to throw thousands of skilled, loyal, world class workers, their families and communities under the bus during the worst public health crisis since 1918 is shameful opportunism,’ Unite assistant general secretary for manufacturing Steve Turner said.

‘This company has accepted public money to furlough thousands of workers. Unite and Britain’s taxpayers deserve a more responsible approach to a national emergency,’ he added.

The trade union has called on the UK government to support workers and is hoping that Rolls-Royce will rethink their plans to lay off thousands of people.

In response, the UK government has said that it ‘stands ready’ to support the engine maker and its workers as they attempt to navigate the challenging trading enviroment.

‘We know this will be distressing news for Rolls-Royce employees and we stand ready to support those who may be affected and their families,’ a government spokesperson said.

‘Whilst this is a commercial decision by Rolls-Royce reflecting a reduced demand for new aircraft resulting from the global Covid-19 pandemic, we will continue to work closely with the company to ensure it can sustain investment in cutting-edge aerospace technology here in the UK.’

How much does it cost to buy UK shares with IG?

There are two ways to ‘buy’ UK shares with IG: trading CFDs or buying physical shares. The cost will depend on which method you choose. The table below illustrates how the costs to get exposure to £10,000 of Lloyds stock, which is equivalent to 16,000 shares (quoted at 62.5p a share).

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Cost to get exposure to Lloyds stock

CFD trading Share trading
Action Buy 16,000 share CFDs Buy 16,000 shares
Capital required to open £2000 £10,000
Total fees £20.88 £16

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