Rolls-Royce Expected to Report Disappointing Interim Results, Caution Needed on Future Guidance, Says UBS

Rolls-Royce Holdings PLC (LSE:RR.) is anticipated to unveil underwhelming numbers in its upcoming interim results, and the company needs to exercise caution regarding its future guidance, according to UBS. The Swiss bank predicts that Rolls-Royce’s aeroplane engines will have accumulated between 6.2 million and 6.4 million flying hours in the first half of the year, representing approximately 83% to 85% of pre-pandemic levels.

UBS analysts express concerns that the figures may fall below investor expectations, which hover around 85%, as the anticipated seasonal increase in long-haul flight times has yet to materialize. The shortage of aircraft, exacerbated by delays from key suppliers Airbus and Boeing, plays a significant role in the lower-than-expected numbers, as explained by the analysts. They note that this weakness in June aligns with industry narratives surrounding capacity constraints and airlines prioritizing price over volume at present.

Despite these challenges, Rolls-Royce’s first-half figures indicate that the company is on track to achieve between 80% and 90% of its 2019 performance. However, UBS emphasizes that Rolls-Royce needs to exercise caution when discussing future guidance, given that the company’s investment case relies on regaining trust.

Analysts stress that any indications suggesting that guidance is at risk would attract significant attention. Nevertheless, they assure that long-term predictions are unlikely to be adversely affected.

UBS maintains a ‘buy’ rating on Rolls-Royce, with a share price target of 200p, representing a 28% increase from Wednesday’s closing price of 155.8p. The cautious approach to future guidance aligns with the company’s need to rebuild trust among investors, while the anticipated numbers for the first half of the year indicate progress toward recovery.