Rolls-Royce Holdings PLC (LSE:RR.) is expected to reveal an improved but not entirely encouraging performance on Thursday, that’s according to UBS.
The engineer’s aerospace division continues to be impacted by the slow pace of recovery in aviation, the Swiss bank reckons.
Analysts at UBS anticipate second-half group sales of £6.3bn, which would equate to a 27% rise on the preceding six months or an 8% improvement against last year’s comparatives.
UBS, in its model, pencils in around £3bn for aerospace along with £1.8bn for power systems and £1.6bn for the defence division. It highlighted, however, that aerospace - where billable income it tied to ‘engine flying hours’ - remains under pressure as airlines continue to grapple with the post-Covid world.
“We retain a more cautious view on the recovery of long-haul and corporate travel, which Rolls-Royce is overexposed to given its widebody engine bias,” the bank’s analysts said in a note.
January and February were meanwhile seen to have had a “gradual improvement” in engine flying hours, they noted, with the first quarter of 2022 seen rebounding to the equivalent of 51% of pre-pandemic levels (whereas, this time last year it was 41%).
“Global flight schedules for widebody fleet have remained flat in the year-to-date (January, 54% of 2019 levels), but expected to rebound strongly from Mar 2022 (64% in Mar 2022 and 77% in 2022) but they could see downside risks,” UBS said.
“We stick to more conservative scenario in our forecasts, with Civil Aerospace revenues at £2.4bn in 1H22 (-21% sequentially) and £5.8bn for FY21 (+13% y-o-y), as Omicron restrictions continue to weigh on the international travel recovery.”
The bank said that the power systems business will likely remain under pressure due to supply chain issues and - without geopolitical context or innuendo – noted that “defence should continue holding up well.”
Rolls-Royce reports its full-year results for 2021 on Thursday, February 24.