Home Stock Rolls-Royce share price analysis as it reduces cash burn

Rolls-Royce share price analysis as it reduces cash burn


The Rolls-Royce (LON: RR) share price slumped on Thursday as investors reflected on the company’s trading statement and the rising risks of the Omicron variant. The stock is trading at 123.76p, which is significantly lower than the year-to-date high of about 150p.

Rolls-Royce trading statement

Rolls-Roye Holdings is one of the biggest industrial companies in the UK. The company manufacturers and services jet engines. It is also a leading defence contractor and a major player in the power industry.

Civil aviation is the biggest segment of the company. In it, it makes money by directly selling jet engines to airlines like British Airlines and Lufthansa. Most of the profits come from the long-term service contracts that the firm has with these airlines. 

In a statement on Thursday, the company said that it was burning less cash as its restructuring program increased. As part of this restructuring, the firm has laid off thousands of workers and sold some of its businesses. It expects that these layoffs will save it more than 1.3 billion pounds in the next few years. 

The trading statement did not have forward guidance because of the uncertainty in the aviation industry. In a previous statement, the firm said that it expects that its trading cash flows will be about 750 million when flying hours rises to about 80% of 2019 hours.

The Rolls-Royce share price also declined because of the Omicron variant. In the past few weeks, countries like the United Kingdom, Germany, and Austria have seen more cases. As a result, the UK government announced more rules to combat the illness.

Some of these rules could have an impact on Rolls-Royce and other companies in the aviation sector like British Airways and EasyJet. For example, the provision of vaccine passports could prevent people from travelling. The same is true with the work-from-home guidelines.

Rolls-Royce share price forecast

The daily chart shows that the RR share price formed a double-top pattern at the year-to-date high of 150p recently. A double-top is usually a bearish sign. The stock managed to move below the chin of this pattern recently when South Africa confirmed the Omicron variant. It then formed an island reversal pattern and moved slightly below the 25-day moving average. 

Therefore, there is a likelihood that the Rolls-Royce share price will keep falling as investors target the key support at 100p.

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