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The -£17B Engine

We’re delighted to provide a research update on one of our favorite positions, Rolls-Royce.

Click here to read “The -£17B Engine”

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.

Speed Read

  • 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.


This article has been distributed for informational purposes only. Neither the information nor any opinions expressed constitute a recommendation to buy or sell the securities or assets mentioned, or to invest in any investment product or strategy related to such securities or assets. It is not intended to provide personal investment advice, and it does not take into account the specific investment objectives, financial situation or particular needs of any person or entity that may receive this article. Persons reading this article should seek professional financial advice regarding the appropriateness of investing in any securities or assets discussed in this article. The author’s opinions are subject to change without notice. Forecasts, estimates, and certain information contained herein are based upon proprietary research, and the information used in such process was obtained from publicly available sources. Information contained herein has been obtained from sources believed to be reliable, but such reliability is not guaranteed. Investment accounts managed by GreenWood Investors LLC and its affiliates may have a position in the securities or assets discussed in this article. GreenWood Investors LLC may re-evaluate its holdings in such positions and sell or cover certain positions without notice. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of GreenWood Investors LLC.

Past performance is no guarantee of future results.

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