Despite posting a record loss in 2016, the investment fundamentals of British engineering stalwart Rolls Royce PLC (LON:RR.) are really unchanged, reckons City Index market analyst Ken Odeluga today.
The order book is looking good and management’s conservative projections on cost savings for the year ahead point to upside ahead, the analyst suggests.
Earlier, the FTSE 100 giant reported a pre-tax loss of £4.636bn, a 49% drop on the £160mln profits recorded in the previous year, after being hit by a fall in the pound and charges related to bribery scandals.
"It's been a very trying period with respect to the conduct issues, but nevertheless all of that is contained and I think the company is right to point to the likely improvement in its operations and its ability to generate free cash flow in the year ahead," says Odeluga
Odelugo also added that on an underlying basis, the 49% drop was better than expected, and should signal that the company was on a "surer" footing than it had been this time last year and during the last 18 months.
Rolls said it had seen a good free cash flow performance in 2016, led by working capital improvements, and maintained its final dividend at 7.1p per share, although its total payout falls to 11.70p from 16.40p, in line with a change in its dividend policy announced with its 2015 annual results.
Odelugo told Proactive's Andrew Scott it was prudent for Rolls to make these steps at a time of heightened uncertainty.
"We are entering a period of more uncertainty with respect to countries, which are the main customers of groups like Rolls Royce," he said, adding it made sense for the firm to give itself some leeway here.