The Rolls-Royce Holding PLC (LON: RR) share price has risen by 20.3% in the past month amid a broad market recovery. However, the question remains, will RR shares keep rising in future?
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To answer this question, we must look at Rolls Royce’s business fundamentals. First, the company draws a significant portion of its revenues from its civil aviation business, which supplies engines for long-haul flights.
The company’s revenues from its civil aviation division fell significantly due to the COVID-19 pandemic lockdowns that ground most air travel globally. Air travel has since recovered, but long-haul flights are still down significantly due to restrictions in many countries.
However, Rolls Royce has taken massive action to reduce costs by laying off 9,000 employees and selling some of its business units. The group sold its ITP Aero for €1.6bn (£1.4bn), most of which it used to pay down some of its debts, but it still has about £4bn in outstanding debts.
The company’s defence business is booming after it recently secured an order to supply 500 engines for armoured vehicles used by the British military. The firm has also invested heavily in boosting its inventor levels to ensure that customer orders are delivered on time.
Many aviation experts expect global long-haul flights to return to pre-pandemic levels in 2024. Therefore, we can expect Rolls Royce revenues from its civil aviation division to recover in the same year.
However, we cannot rule out a recovery in the short to medium term as we have seen recently amid a broad market rally as investors reacted positively to the new British government led by Rishi Sunak after the spectacular collapse of Trussonomics.
Rolls Royce’s next debt maturity of £500 million is due in 2024, which gives it ample time to gather the cash for the payment. However, the ongoing interest costs related to its debt are not cheap and the company has to generate sufficient free cash flows to meet its debt obligations.
*This is not investment advice.
Rolls-Royce share price.
The Rolls Royce share price has risen by 20.28% in the past month amid a broad market rally. What’s next?