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Shares in Rolls Royce (RR) have finally broken above 9-month falling highs to retest a 600p handle as markets reward CEO Warren East for the difficult decision to slash the FY dividend by a whopping 50%, well beyond expectations of 25%, joining commodity sector peers – quite rightly – in doing what’s necessary to ensure balance sheet solidity, financial flexibility and above all future shareholder value. This despite markets having adopted a far too short-termist approach in terms of corporate guidance. With shares down 43% since last May and -53% over 2 years, however, following multiple profits warnings, the thankful absence of another, the maintenance of FY16 guidance and no talk of a rights issue is probably even considered the real news, appeasing the fearful loyal who are no doubt upset at the reduction to income despite it being necessary in the current troubled economic environment and designed to safeguard long term returns. Still work to do on the restructuring front, but a 20% move off the share price lows could signal a turning point on a difficult journey. And breath Warren.
Mike van Dulken, Head of Research
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
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