Rolls-Royce share price has rebounded in the past few weeks, erasing some of the gains it made between August and October. RR jumped to a high of 1,393p, up by 20% from its lowest point in October. This article explores what to expect after the company published its financial results on Thursday.
Rolls-Royce Group reaffirmed, but did not raise its guidance
Rolls-Royce Holdings is the biggest industrial company in the UK, focusing on industries like civilian aircraft engine manufacturing, defense contracting, power, and the small modular reactor (SMR) industries.
The company has benefited as all these businesses have thrived after the pandemic as the civil aviation industry has thrived. It is also benefiting from the ongoing boost in defense spending in countries in Europe, Middle East, and Asia.
Rolls-Royce Holdings published its trading statement on Thursday. The management reaffirmed its full-year guidance of between £4.7 billion and £4.9 billion of underlying profit and between £3.8 billion and £4 billion of free cash flow. Unlike in the past, the company did not raise its guidance.
The management announced an interim share buyback of £1.5 billion, which will be completed when it publishes its full year results on February 25. This buyback is part of the existing plan of repurchasing shares worth between £7 billion and £9 billion, which will conclude in 2028.
In the statement, the management noted that its business was growing across the board, with it aircraft engine backlog being 2,500. It recently received large orders from companies like Avolon, Cathay Group, and Air China.
Most importantly, the company has seen the large engine flying hours grow by 4% in the first ten months of the year. This is crucial because the civil aviation industry went through major challenges as jet fuel prices soared and several large airlines slashed their trips. Indeed, the EFH from its Middle East airlines has moved above the pre-conflict levels.
Rolls-Royce Holdings has also seen a strong demand in its defence business as countries continue boosting their spending. Most importantly, its power business is booming because of the ongoing artificial intelligence (AI) boom. Its order intake in this business jumped by 62%, bringing the total backlog to £8.6 billion.
The company noted that orders for gas engines has more than tripled YoY, driven by data center demand. Also, it is now in the process of finalizing a major contract with a top hyperscaler. In a statement, the CEO said:
“Our transformation and the actions we are taking are creating a Rolls-Royce with a diversified portfolio of high-performing businesses, with greater resilience and significant growth potential.”
Rolls-Royce share price technical analysis
Rolls-Royce stock chart | Source: TradingView
The daily chart shows that the RR stock price has rebounded in the past few weeks. It jumped from a low of 1,158p on October 23rd to a high of 1,393p. The stock has now pulled back to the current 1,354p.
It is consolidating along the 50-day Exponential Moving Average (EMA). The risk, however, is that it has formed a hanging man candlestick pattern, a common bearish reversal sign in technical analysis.
The Average Directional Index (ADX) has dropped to 31.20 from this month’s high of 45, a sign that the recent recovery has started to fade.
Therefore, there is a likelihood that the stock will pull back further, potentially to the psychological level of 1,300p and then resume the uptrend. In the future, the stock will likely rebound, with the next important target being at 1,500p.
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