Rolls Royce faces another tough year, says Charles Stanley

Rolls Royce faces another challenging year in 2016, said Charles Stanley, although the broker kept its recommendation at ‘hold’ on Wednesday.

The company last week halved its final dividend to 7.1p per share as underlying full year profit before tax dropped 12% to £1.4bn. It marked the first dividend cut since 1992 and followed five profit warnings in the last two years. Annual group sales fell 1% to £13.4bn.

The marine division, exposed to falling oil prices, dragged on results. The civil aerospace unit was also under pressure as it tried to manage a transition from older, more profitable engines to new turbines.

Charles Stanley said the results were broadly in line with the lower end of City expectations.

“We anticipate another challenging year in 2016 with negative free cash flow stemming from lower profitability due to deterioration in the civil aftermarket (surplus spare parts), weak demand for corporate and business jet engines and continued pressure in offshore markets at Marine (oil price),” said analyst Tina Cook.

“The long-term value embedded in the civil aerospace business remains intact, but Rolls Royce will remain in a tough transition phase over the next few years.”