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Shares I love: Rolls-Royce

Rolls-Royce has had a difficult first half but has a strong order book and growth prospects
August 13, 2014

Jeremy Thomas, co-manager of Brunner Investment Trust (BUT), explains why now might be a good moment to buy shares in aerospace company Rolls-Royce (RR.).

"Rolls-Royce has maintained its full-year profit guidance in its half-year results which should come as some relief to the market," he says. "The first-half numbers were poor as expected, and forecasts had been much reduced by the profit warning the company issued in February.

However, we welcome the additional detailed disclosure in the statement which builds on the information given at the June investor briefing, and should go some way towards improving confidence with investors in what is a complex business.

The long-term opportunity for Rolls-Royce is clear with a £70bn order book, a market share in large civil aerospace engines in excess of 50 per cent, high margin aftermarket revenues and the potential to improve group margins meaningfully. As its chief executive officer John Rishton, has acknowledged, Rolls-Royce is suffering some growing pains, but in our view this short-term discomfort gives investors an opportunity to buy a long-term winner at an attractive price."

Rolls-Royce expects significant improvement in profit for the second half of its financial year driven by higher revenue and cost reduction. It added that "the prospects for long-term growth remain outstanding across the group and in particular in civil large engines where our market share on order is over 50 per cent."

Investors Chronicle rates Rolls-Royce a 'buy.' The company has had strong orders for its Trent engine-powered Airbus planes including more than 20 placed in the second half of July, from four smaller regional airlines. Rolls-Royce has generated particularly strong interest from the recent launch of its new Trent 7000 engine which is designed to deliver upgraded performance including better fuel efficiency and less noise.

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