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Author: Alan LittleDate: 2021-01-27

Rolls-Royce (RR) -2% as new COVID-19 restrictions hit recovery

Aerospace giant Rolls-Royce (RR) traded lower on Tuesday after it said that new travel restrictions would slow its recovery and analysts forecast more uncertainty.

Analysts said that Rolls-Royce’s (RR) recovery plans have been “tripped up” by tightened restrictions on travel in Western countries as the aviation company’s shares plunged 9% on Tuesday before a late rally.

Rolls-Royce used more than £4bn in cash and cut thousands of jobs last year as the global pandemic decimated its core divisions.

The company was hopeful of bouncing back in early 2021, but further lockdowns and the prospect of a ban on all overseas trips have applied further financial pressure.

In an update on Tuesday, Rolls-Royce said that the new more transmissible strains of COVID-19 had slowed recovery as it offered a more pessimistic outlook for the year.

It now sees widebody engine flying hours slumping 45% in 2021 compared to pre-pandemic levels, a revision from the 30% forecast in October.

However, despite the uncertainty, the London-based company said that it still expects to return to positive cash flows in H2 2021.

Chief executive Warren East expects to generate £750m in free cash flow by getting rid of another 2,000 jobs during the next two years.

UBS analysts said that the vaccine rollouts were a potential upside and that domestic and intra-regional traffic should at least increase in the near future.

However, it noted that long-haul numbers may not get back to 2019 levels until the middle of the decade.

UBS said that expectations for Rolls-Royce to burn though a further £2bn in cash this year was £500m more than anticipated.

AJ Bell analysts said: “No-one should have expected it to travel a smooth path in early 2021 given the ongoing uncertainty on when the aviation sector will return to better health.”

Rolls-Royce stock fell 9% in early trading on the London Stock Exchange, but an afternoon rally shaved those losses to around 2.5% with shares valued at 95.52p.


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