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We’re delighted to provide a research update on one of our favorite positions, Rolls-Royce.
After you read the note, please take a stab at predicting your own forecast of what the company’s fundamentals will do over the coming years. This is a component of our Superforecasting trial, where we are testing whether our group of investors can outperform consensus forecasts which are materially lower than our estimates. The current default scenario is predicting a global financial crisis and 9/11 event in 2020, so must be manipulated to better reflect the more likely scenario.
- We’re in the final stages of the Trent 1000 fan blade issues remaining a problem. The market has penalized the company by £17 billion (125% of the market cap) given the issues;
- 70% of the company’s civil aerospace business is entering the cash-generation phase of the life-cycle with hefty ramps already taking place;
- Rolls is on course to continue taking market share in the industry, from a much stronger base in mid 2020s;
- We outline all of the bear theses, only 1 of which concerns us. Recent data and disclosures provide additional comfort that this risk is ebbing;
- The roadmap ahead is quite compelling, with FCF in the process of increasing between 3-5x over the next 3 years. Regardless of a re-rating, we expect material upside.
If you have any trouble manipulating the drivers in this page, please click here to go directly to the Trefis page.
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Past performance is no guarantee of future results.