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Is Rolls Royce (RR) Share Price a Bargain After the Split?

Rolls Royce share price ended lower yesterday as the embattled company announced fresh job cuts in the UK. The shares are now trading at 74.52p, which was 11% lower than the Wednesday’s high of 86.28p.

RR problems started before Covid

Rolls Royce has been under intense pressure in the past few years. Indeed, its problems started before the Covid pandemic. In 2016, the company recorded a £4.6 billion loss mostly because of currency-related issues. It was also forced to pay more than £670 million to deal with a bribery case.

In 2018, the company experienced more problems when its popular Trent 1,000 engine developed cracks. To deal with it, the company spent millions of dollars to research and find repairs. As a result, the firm made a $3 billion loss in 2018. In the past twelve months, the firm has lost more than $7.1 billion.

The Covid pandemic has made things worse for the company. That is because all airlines are struggling, meaning that additional engines and planes are their least concerns. Indeed, Boeing and Airbus have lost orders worth billions of dollars.

Most importantly, the number of intercontinental trips has remained low as countries have put in place measures to limit the virus. That has put Rolls Royce into more problems because most of its income comes from the servicing of wide-body aircrafts.

Rolls Royce recently boosted its balance sheet

Still, Rolls Royce balance sheet is in a strong position after the company raised money through a rights issue. It is also raising billions more money through debt. Most importantly, the firm has made efforts to cut costs including layoffs and suspending dividends. It has also considered selling-off assets. According to the Telegraph, the firm is considering selling its Bergen Engines unit for about £129 million.

However, the biggest challenge for Rolls Royce is that a vaccine is taking longer than most analysts expected. Also, with the number of cases rising, it could take longer than most analysts expect for the firm to recover. At the same time, some of its cost-cutting measures like moving a plant to Singapore have found strong resistance in the UK.  

For long-term investors, investing in Rolls Royce at its lowest seems like a good idea. Furthermore, the airline industry will likely recover. However, investors need to be ready for increased volatility in the next few years.

Rolls Royce share price technical outlook

On the four-hour chart below, we see that Rolls Royce share price has made some gains since October, when it traded at 34.82p (in a split-adjusted price). However, in the past few days, the shares have remained in a narrow range. It is in the same range as the 15-day and 25-day exponential moving averages. Therefore, at this point, from a technical perspective, the short-term outlook is neutral. The key support and resistance levels to watch are 60p and 100p.

Dow Jones Daily Chart

Rolls Royce Share Price