Friday newspaper share tips: Rolls-Royce descent in focus

The pride of British engineering has hit upon turbulent times of late, and now appears to be in a descent. From a high of 1289p on 7 January 2014, the stock closed on Thursday at 520p.

As of 10:51 Friday, it was trading at 518p.

The Financial Times took to calling the company a “financial embarrassment” in its Lex column, calling the near-term outlook “murky”.

“Weak demand in the lucrative aftersales service business is to blame. Airlines are parking older, less fuel-efficient jets – high margin sales of spare parts for these planes are Rolls’ bread and butter – and switching to more modern equipment.”

But Lex was also quick to point out that not everything looked dreary. It noted the company's “robust” order book as nullifying any need for immediate panic.

“And the longer-term outlook for large aero engine sales is good – Boeing, for example, expects commercial aircraft demand to grow by 38,000 jets in the next two decades.”

The Telegraph did not take such a sunny stance, however, as its Questor column picked looming dividend cuts as “nasty”. Rolls had only indicated dividends were under review.

“At the start of this year, Rolls-Royce was hoping pre-tax profits in 2016 would be largely flat at about £1.35bn. By July that fell to £1.1bn, and investors are now looking at around £750m.”

Questor didn’t like the outlook for the firm’s 54,000 employees, either. “Chief executive Warren East wants to cut up to £200m out of the cost base by 2017, and this will result in a large outlay for redundancies next year.”

And while the paper’s stance on Roll’s future prospects wasn’t quite the same as the rosier Financial Times, it did make a point of the company’s solid foundation, with net assets totalling £6.3bn against anticipated net debts of £1bn at the year end.

Questor’s advice? The same as it was on 6 July, when the shares were trading at 802.5p. “Avoid”.