The Rolls Royce (LSE: RR) The share price declined during the March 2020 stock market crash and continues to decline. In October 2020, it dropped from 200p to an 18-year low of just p. Since then, stocks have struggled to gain momentum, hovering around the 100p mark for most of 2021. However, in the last few days, the price of Rolls-Royce shares has gained 35%. Let’s take a closer look at the reasons behind this rise, whether this trajectory could continue and buy it for my portfolio.
One of the main reasons for the recent price increase is the news of the sale of Rolls’ Spanish business ITP Aero. The sale of the subsidiary to Bain Capital Private Equity will raise about € 1.7bn. This transaction “The main ingredient”The firm’s settlement plan to help rebuild the balance sheet in the wake of the epidemic. Not only does it add cash, it is an important part of rebuilding Rolls ’credit profile. This will allow you to draw more easily from the line firmly. Both of these factors are great news and help explain the rise in Rolls Royce’s share price.
Another key issue is the news that Rolls has won a potential 17-year contract with the U.S. Air Force to supply F130 engines. The contract is based on six years, valued at about 500 500 million. It guarantees future business, i.e. uninterrupted flow of cash. Rolls has faced a major problem in its balance sheet since the epidemic. Businesses like this are needed to ensure its future.
Additionally, the travel industry has begun to work closer to pre-epidemic levels. More flights means more engines will have to be serviced by the firm. This will help repair the balance sheet and increase the price of Rolls Royce shares.
The risk is moving forward
Although the above points point to a strong financial position for Rolls, the balance sheet remains damaged and the company still holds a large amount of .n.
The 2021 half-year results show that the company had more than 30 300 billion in debt as of June-June 2021. Inflation is on the rise due to the Covid-related government fiscal stimulus. We are more likely to raise interest rates at the Bank of England as inflation rises. If this is the case, Rolls may be in an adhesive position due to its debt level.
In addition, there are still concerns that the travel industry may not recover as quickly as expected. McKinsey analysts do not expect the industry to be fully operational by 20224. If so, it will focus on recovering the rolls.
Can Rolls Royce share price rise?
Shares have probably risen 35% in the last 30 days, but I’m still in no hurry to buy any shares for my portfolio. I think Rolls-Royce share prices may rise further in the future, however, after such a big movement, corrections are often followed.
For now, I will keep a close eye on the company’s results as it continues to rebuild its balance sheet. If the positive news continues to come, I hope Rolls Royce share prices continue to rise. But I will buy only when I see recovery.
Dylan Hood has no position in any of the shares mentioned. Motley Flower UK has no position on any of the shares mentioned. Opinions expressed in the companies mentioned in this article may differ from those of the author and therefore our official recommendations in our subscription services such as Share Advisors, Hidden Winners and Pro. Here at The Motley Flower we believe that considering a variety of insights makes us a better investor.