Jefferies warns of 12% revenue slump for Rolls Royce

The US-based investment bank warned investors that Rolls Royce could see revenues take a significant slide in 2020, with the engine maker planning to cut 8000 jobs due to the Covid-19 crisis.

Analysts at Jefferies told investors it expects full year group sales at Rolls-Royce to plummet 12% in 2020, with the engine maker under increased pressure amid the Covid-19 crisis with the airline industry grounded until further notice.

Due to the economic fallout from the pandemic, Rolls Royce is also considering cutting its work force by 15%, which could see 8000 jobs lost.

‘Such action at some point appeared inevitable,’ analysts at Jefferies said in a note. ‘We forecast full year group sales down 12%, but civil aerospace revenue down 18% mainly due to lower engine deliveries. The bad news really all happens in 2020.’

Thankfully, the company’s balance sheet remains relatively healthy, with the engine maker reassuring investors in an April trading update that it exited 2019 in a ‘robust liquidity and financial position’.

‘In response to the change in outlook resulting from the global spread of COVID-19 and to ensure cash headroom in the event of a prolonged reduction in trading activity, we took the precautionary decision in March to draw fully on our £2.5 billion revolving credit facility,’ the company said.

‘Including this cash, which has been placed on short-term deposit, our current gross cash balance is £5.2 billion. We have also secured an additional £1.5 billion revolving credit facility commitment with a consortium of banks, which will increase overall liquidity to £6.7 billion.’

Société Générale downgrades Rolls Royce

The uncertain economic outlook and resulting market conditions has seen several brokerages, including analysts at Société Générale, to downgrade Rolls Royce.

The French investment bank not only reduced its rating for the company from 'hold' to 'sell', but also lowered its target price for the engine maker to 246p per share, implying potential downside for the stock of -16%.

Rolls Royce closed at 293p per share on Wednesday, with the stock down 56% year-to-date.

‘We find ourselves in unprecedented times, both as a company and as a key player in vital power markets across the world,’ Rolls Royce CEO Warren East said in a statement. ‘Our priority is to do everything we can to safeguard the lives and livelihoods of our people and to play our part in helping our customers, partners and communities.’

‘We are taking significant measures to strengthen the operational and financial resilience of our business. I would like to thank all our 52,000 colleagues worldwide for their support, dedication and hard work at this time when difficult decisions are being made,’ he added.

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