Rolls-Royce Holdings PLC (LSE:RR.) could be lining up to deliver “a lot more” after working capital outflows appear to have been brought under control, analysts say.
Highlighting a boost to free cash flow on better working capital in the engine makers' interim results, Liberum noted this was “the big lever that had been missing from previous guidance”.
“[There is] potentially a lot more to come if ratios can be normalised,” analysts added.
Rolls-Royce reported a £228 million working capital outflow for the first half of the year, against £465 million a year earlier.
This aided a boost in free cash flow, the company said, which climbed from £356 million in the first half of 2023 to £1.2 billion this year.
The company also reported a 74% increase in underlying profit to £1.1 billion, with revenue climbing 18% to £8.2 billion.
Liberum highlighted that Rolls-Royce’s improvements were “implicitly internally generated,” given guidance on engine flight times, based on which the company is paid, were unchanged.
Rolls-Royce’s guidance for a £2.1 billion to £2.3 billion operating profit and £2.1 billion to £2.2 billion in free cash implies a similar second half to the year, Liberum added, leaving scope for “upside risk” in the months ahead.
‘Buy’ was the rating from Liberum, with Deutsche Bank analysts echoing the call, noting improvements came in spite of ongoing supply chain challenges.