RR/ LN
Rolls-Royce Holdings PLC
Industrial/Transportation
08/12/2016
Presented
| Date | 08/10/2016 |
| Price | £7.97 |
| Market Cap | $22.54B |
| Ent Value | $21.66B |
| P/E Ratio | N/A |
| Book Value | £2.09 |
| Div Yield | 0% |
| Shares O/S | 1,841.00M |
| Ave Daily Vol | 6,057,321 |
| Short Int | N/A |
Current
| Price | £5.41 |
| Market Cap | $70.64B |
| Rolls-Royce Holdings Plc is a holding company, which provides power for aircraft, ships and land applications. Its designs, develops, manufactures and services integrated power systems for use in the air, on land and at sea. The company operates its business through following segments: Civil Aerospace, Defense Aerospace, Marine, Power Systems and Nuclear. The Civil Aerospace segment engages in the manufacturer of aero engines for all sectors of the airliner and corporate jet market. The Defense Aerospace segment provides defence aero-engine products and services. The Marine segment engages in the design, supply and support of power and propulsion systems. The Power system segment provides large reciprocating engines, propulsion and distributed energy systems. The Nuclear segment provides long-term support services across the reactor lifecycle, covering safety, licensing and environmental activities including component design, manufacture and supply; in-service support and plant life extension; as well as nuclear instrumentation, control and safety systems. Rolls-Royce Holdings was founded in March 1906 and is headquartered in London, the United Kingdom. |
Publicly traded companies mentioned herein: Airbus Group SE (AIR FP), Boeing Corp (BA), General Electric Company (GE), Rolls-Royce Holdings plc (RR/ LN), Safran SA (SAF FP), United Technologies Corporation (UTX)
Highlights
While the conceptual impact of a switch to IFRS 15 on Rolls-Royce’s (RR) revenue is somewhat understood by investors, the presenter believes the actual magnitude of the impact on revenue, and how bad it will be, is meaningfully underappreciated. Generally speaking, the “murky”, complicated math in modeling RR, and the aggressive nature of the company’s accounting for engine sales gives him confidence that the story is not well understood. As such, he is short the stock at 790p and intends to hold his position for at least the next 12 - 24 months to see how the story unfolds. If his estimates of the accounting change prove to be accurate, RR’s reported revenue on engine sales is ~75% overstated and earnings could come in closer to 15 GBp. Even if the current forward multiple framework holds (~20x) the stock could see declines of 50% or more.
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