Rolls-Royce Holding PLC Falls On Acquisition News But Still Leads BAE Systems plc And Cobham plc

Shares in Rolls-Royce Holding PLC (LON: RR) are still ahead of BAE Systems plc (LON: BA) and Cobham plc (LON: COB) year-to-date

Rolls-Royce Holding PLC
Rolls-Royce Holding PLC

Shares in Rolls-Royce Holding PLC (LON: RR) (LSE: RR.L) have fallen by 2% today following news that the company will purchase the outstanding 53.1% shareholding in Industria de Turbo Propulsores SA. Rolls-Royce will pay a total consideration of €720 million, with the deal obviously being subject to due diligence.

Rolls-Royce believes that the acquisition will strengthen its position on its Civil Aerospace large engine growth programme by capturing substantial additional value from its long-term aftermarket revenues. This includes the high volume Trent 1000 and Trent XWB engines, in which ITP has played a pivotal role with regard to risk and revenue in particular.

Further, today’s acquisition will also improve Rolls-Royce’s services and manufacturing potential, with it benefitting the company’s Defence Aerospace business.

The agreement allows Rolls-Royce to settle up to a maximum of 50% of the total consideration in shares, which provides the company with a degree of flexibility. Whether payments will be settled in cash, or cash and shares will be determined by Rolls-Royce during the payment period. Additionally, since ITP has exercised its put option, Rolls-Royce will settle over a two-year period following completion in eight equal, evenly spaced instalments.

In 2015, ITP’s revenues were €710 million, with profit after tax being €59 million. Gross assets were €1.7 billion as at 31 December 2015.

Despite what appears to be positive news, shares in Rolls-Royce have fallen by around 2% today. However, they are still up by 25% since the start of the year, which is well ahead of aerospace and defence sector peers BAE Systems plc (LON: BA) and Cobham plc (LON: COB). BAE Systems is up by 8% year-to-date, while Cobham is down by 43% as its financial outlook has been hurt somewhat by recent updates.

Rolls-Royce has a P/E of 29, which is high relative to a number of its sector peers. However, the market has priced in EPS growth of 32% next year and with it having a new strategy as well as international operations that could benefit from weaker sterling, it seems to be relatively appealing in my view.

If you like what you’ve just read, consider sharing this article via social media using the four buttons below. Or, follow @InvestomaniaUK on Twitter by clicking ‘follow’ in the top right-hand corner of this page to receive a tweet when we publish a new article.

The author owns shares in BAE Systems at the time of writing.

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.