Rolls-Royce Holdings PLC (LSE:RR.) first-half results are expected to see the engine maker's management upgrade guidance as airline flying hours exceed pre-pandemic levels, with analysts wondering if dividend resumption will be mentioned.
For the first four months of the year, FTSE 100 company said in April that long-term service agreement large engine flying hours (EFH) at its civil aerospace arm were 100% of the levels from 2019, and were on track for full-year levels of up to 110% of 2019 levels.
Analysts at UBS are optimistic about a guidance upgrade from Rolls to underlying profit (EBIT) and free cash flow (FCF) of £2.1-2.3 billion, above the current consensus forecast of £2 billion for both.
UBS believes the company's engines flew 99% as much as in 2019, translating to significant cash generation. "We believe expectations of an upgrade are well justified," UBS noted.
Deutsche Bank lowered its full-year EFH forecast from 108% of 2019 levels down to 106% but said its "degree of confidence in the company's ability to deliver on its transformation programme has increased".
Analysts at the German bank pointed to minor headwinds from the euro and the US dollar having both appreciated since the start of the year, weighing on Rolls' Defence and Power Systems sales and EBIT.
Improved execution under CEO Tufan Erginbilgic means Deutsche has raised its price target from 465p to 555p, citing tangible targets such as a £300 million gain from favourable hedging and £400-500 million in cash cost cuts.
Deutsche Bank speculated that dividend payments could be resumed, with next year seen as likely.
"The €550m bond repayment made in Q1-24 was the last element in place preventing Rolls-Royce from paying a dividend.
"Since we expect a net cash position as of 2025, we expect dividend payments to resume in 2025, with a 25% pay-out."