Rolls-Royce shares have faced significant downside throughout the pandemic but shares have recently seen all the benefits of increased air travel scuppered by a poor set of results that missed expectations.

During the pandemic, the company suffered huge losses of nearly £4bn as a result of stringent travel restrictions.

Rolls-Royce is one of the world’s largest suppliers of jet engines. However, the company’s main source of revenue comes from the maintenance costs of the engines rather than just the sales. This means the company needs planes to be flying to earn revenue.

In 2021, Rolls-Royce saw operating profits of £513m as opposed to losses of £1.9bn in 2020 as the pandemic came to an end.

The company saw revenues over £11bn with largest contributions of £4.5bn and £3.3bn from the civil aerospace and defence segment respectively.

Rolls Royce’s Civil Aerospace division produced revenues of £4,536m in 2021 after recording 7.4m large engine flying hours, up 11% on 2020.

This is set for further recovery in the coming year and will be a key driver of revenue growth and profitability in 2022.

Although the key driver of demand in their Civil Aerospace unit is set to return, there should be caution around the impact of inflation on household spending and a possible reduction in leisure travel.

Defence

With tensions arising on the geopolitical front due to the Russia-Ukraine war, Rolls Royce will likely see an uptick in defence orders as global powers once more refocus their budgets on bolstering their military capabilities.

The defence segment saw an increase of £155m to £3.3bn in 2021 revenues, with an underlying operating loss of £172m.

Rolls Royce have secured a B-52 engine replacement contract with the US which promises a long term revenue source and have recently announced the launch a joint-venture to create a fighter jet engine for Turkey, an TF-X aircraft.

Investors will be watching closely for any surprise contract wins this year.

Power Systems

The revenues in the power systems business division increased by £89m to £2.7bn. Rolls Royce power solutions are focused on clean energy across a diverse range of applications from hydrogen combustion engines to power solutions for a hyperscale data centres.

Rolls Royce is also moving into nuclear power after receiving a $546m funding round supported by the UK Government for Rolls-Royce to start developing their first small modular nuclear reactors.

Earlier in the week, the British government requested the UK nuclear regulators to begin the process of approving Rolls-Royce’s nuclear reactor initiative.

The results from the nuclear reactors should help reduce carbon emissions and fossil fuel dependence, and in time, Rolls Royce revenues.

“We have also made significant progress with our new businesses in electrical power and small modular reactors, both of which have the potential to create very significant long-term value,” said Chief Executive Officer, Warren East.

Warren East is set to leave his post at the helm of Rolls Royce which has dented investor sentiment around Rolls Royce shares.

The power division saw an increase of £67m in underlying operating profit to £242m.

The increase in revenues and underlying operating profits have been observed due to reduced impact of COVID-19 leading to increased order intake in the fourth quarter.

Rolls-Royce Shares Valuation

With Rolls-Royce trading at 93p, the stock has a forward P/E of 29.3x which is high given earnings growth recently missed expectations and margins look weak for 2022.

However, investor sentiment around travel related shares may improve through 2022 and benefit Roll Royce shares, which may swept up in broad-based allocations to the sector.

The BAE Systems’ share price saw a dip of 4.5% to 699.2p in early afternoon trading on Wednesday in a move towards the lowest levels since the beginning of the Ukraine crisis.

BAE Systems is the largest arms contractor in Europe and saw their shares picked up by investors positioning for increased defence spending as a result of the conflict.

The start of the conflict coincided with the release of their 2021 results which revealed an increase in revenue and operating profit in 2021.

However, BAE’s share price has experienced a decline after diplomatic negotiations began this week, potentially quashing the stock’s attractiveness for investors realigning their portfolio’s for prolonged geopolitical tensions.

Should there be a ceasefire, the premium built into BAE’s shares could quickly evaporate and see the stock move back to around 600p, the level it was trading before the conflict.

Financial Results for 2021

Regardless, BAE Systems is a historically strong company and has sound fundamentals. The group saw its sales increase to £21.3 billion in 2021 compared to £20.8 billion in 2020.

The arms contractor reported an underlying EBIT of £2.2 billion against £2 billion in 2020 and a revenue of £19.5 billion in 2021 compared to £19.2 billion in 2020.

BAE Systems highlighted its operating profit of £2.3 billion in against £1.9 billion in 2020, and its order intake of £21.4 billion compared to £20.9 billion in 2020.

The arms group announced a dividend per share of 25.1p against 23.7p in 2020. BAE has almost always been an income investors favourite, and there is nothing in its latest results to suggest this will change.

BAE Systems Growth

BAE Systems reported an expected growth between 2-4% over 2022, attributed to electronic systems, air, maritime, cyber and intelligence sectors in the company.

The company recently acquired US-based Bohemia Interactive Simulations, which specialises in military training simulations, a point of interest as the Ukraine conflict continues.

The arms developer noted that 75% of expected sales are already in its order backlog for the coming year. This has the potential for upside surprises in future earnings releases.

BAE Systems shares

BAE Systems has strong fundamentals and is operating in favourable environment. The company has reported increased profits and dividend for 2021, and is projected to grow 2-4% over 2022 based on its current backorder portfolio.

However, the potential for the Ukraine war premium to be removed from the BAE share price means investors should be patient looking for an entry.

The FTSE 100 climbed on Wednesday following a rally in Asian markets and hopes there would be a ceasefire in Ukraine.

Asian market strength included an impressive 9.1% jump in the Hang Seng index which translated to a strong start for European equites.

“After a big sell-off in Chinese stocks on Monday and Tuesday, Beijing has stepped in with pledges of support to try and stabilise markets,” said says Russ Mould, investment director at AJ Bell.

Ongoing negotiations between Ukraine and Russia also helped lift sentiment as investors positioned for a potential ceasefire.

“There are signs of optimism coming through on financial markets today with the FTSE 100 opening up 1.2% in early trade amid fresh signs a negotiated deal to end the conflict in Ukraine may be a step closer,” said Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown.

Lund-Yates also highlighted optimism around inflation. The falling oil price may mean we have seen a top in a inflation.

“This comes hot on the heels of a rally in Asia and the US, where there are genuine hopes inflation may have peaked.”

Interest Rate Decisions

The markets are awaiting the U.S. Federal Reserve’s policy decision in which it is expected to raise rates on Wednesday.

Investors are flocking to financial stocks with the additional expectations the Bank of England will raise interest rates as a result of increasing inflation and the recent decrease in UK employment rate. Standard Chartered shares are up 2.3% to 493p while Lloyds and Barclays gained between 2.1% and 2.4%.

Scottish Mortgage Investment Trust saw its stock rise 7.6% to 944.9p as its holdings in Asian companies Tencent and Alibaba saw rebounds of 23% and 26% respectively.

Prudential rose 5.9% to 1,059.5p as its refocus on the Asian market in 2021 pulled its share price higher along with the rising Hang Seng index.

“In the UK, the FTSE 100 jumped 1.4%, led by companies exposed to Asia including Scottish Mortgage Investment Trust, Burberry and Prudential,” said Russ Mould.

Fallers

The top fallers were led by Avast with a decline of 11.5% to 570.1p after an $8.6 billion merger with NortonLifeLock was halted by an investigation by the Competition and Markets Authority (CMA).

“As the companies are close competitors, with few other significant rivals, the Competition and Markets Authority is concerned that, if completed, the proposed deal could lead to a reduction in competition in the UK market,” the CMA said in a statement.

BAE Systems fell 3.1% to 709.4p as Russia and Ukraine to discuss a peaceful resolution to the ongoing conflict.

Pearson saw its share price fall 2.2% as the buzz from its declined £7 billion Apollo cash offer subsided.

West African gold company Cora Gold has began drilling in their flagship Sanankoro Project in Southern Mali.

Cora Gold, is focused on developing the Sanankoro Gold Project in Southern Mali’s Yanfolila Gold Belt, where Cora plans to start building an open pit oxide-focused gold mine in 2022.

The drilling has began as expected in Q1 of 2022, with an initial 7,500m drill programme.

In the MRE report released in November 2021, the company found 21.9m tonnes at 1.15 grams per tonne of gold.

The total mineral resource estimate (MRE) was 809.3 koz at 1.15 grams per tonne of gold.

With the drill programme, the gold miners are trying to enhance the MRE.

All deposits remain open at depth and along strike, allowing for significant expansion.

The results from the drilling will be released once the programme is completed. The expected date for completion for the drilling is Q2 2022.

Following the completion of all definitive feasibility study (DFS) field work in January 2022, work on the DFS is picking up pace, with the study scheduled to be finished in H1 2022.

Bert Monro, Chief Executive Officer, Cora Gold, commented, “We have multiple workstreams underway as we set our sights on delivering a definitive feasibility study in the coming months, alongside a resource expansion programme, which we believe will further enhance both the quantum and confidence levels of our MRE.”

“We have consistently demonstrated Sanankoro’s potential to become an open-pittable, free-digging oxide mine and work will accelerate throughout 2022 as we look to make this into reality.” 

“We look forward to sharing updates from this drill programme over the coming weeks.”

Hammerson and joint-venture partner Canada Pension Plan Investment Board have completed the disposal of the shopping centre, Silverburn, near Glasgow.

Silverburn is a 100,000 m2 shopping centre near Glasgow which entered into escrow with a deposit of £40m in December 2021.

Hammerson is a property development and investment company, whose portfolio includes real estate from across the UK and some European cities such as Paris and Nice.

Hammerson has been selling off their non-core assets such as Silverburn, in an attempt to simplify their portfolio and reduce debt.

The sale of Silverburn to private equity real-estate managers Henderson and Eurofund, the operating partners in this acquisition, has been completed for £140m.

Hammerson shares were trading up 3.6% to 32.4p on Wednesday morning with the announcement of the successful disposal of Silverburn.

Centamin saw its share price dive 6.7% to 91.6p in early morning trading on Wednesday, after the mining firm reported a 12% decrease in revenue and a halved pre-tax profit in 2021.

The gold miner reported a revenue of $733 million in 2021, compared to $828 million in 2020.

The company announced a shocking pre-tax profit decrease to $153 million against $315 million in 2020, representing a 51% decline.

Centamin reported an adjusted EBITDA of $328 million compared to $437 million in 2020.

The gold mining company announced a final dividend of 5c per share, representing a $58 million payout for shareholders and a total shareholder distribution of $105 million over 2021.

The group produced 415,370 ounces of gold in 2021, an 8% decrease compared to 452,320 ounces in 2020.

Centamin reported 407,252 ounces of gold sold for 2021, against 468,681 ounces in 2020, amounting to a 13% decline.

The company noted a higher price per gold ounce at $866 against $719 in 2020.

“Delivery towards our strategic objectives was the standout achievement in 2021, placing Centamin in a much stronger position going forward and laying the foundations for long-term success,” said Centamin CEO Martin Horgan.

“We safely delivered annual production and cost guidance and made excellent progress on our key capital projects.”

“Balancing our growth plans with shareholder returns, today we announced a 5 US cent final dividend for 2021 and expressed our intention to pay a minimum 5 US cent 2022.”

The 4imprint Group saw its shares increase 1.98% to 2,835p in early morning trading on Wednesday, after the company announced a soaring 687% jump in profits in its 2021 financial results.

The marketing company reported a 41% climb in revenue to £787.3 million compared to £560 million in 2020.

The firm noted a 672% increase in operating profit to £30.6 million against £3.9 million in 2020, alongside a 687% rise in pre-tax profit to £30.2 million compared to £3.8 million in 2020.

The 4imprint Group announced a total dividend per share of 33.8p for 2021, after declining to pay a dividend over 2020.

The firm attributed its strong financial report to trading recovery in 2021 after the dent in revenue from the Covid-19 pandemic in 2020.

The company highlighted its advantageous financial position of a $41.5 million cash balance with no debt.

The company further acquired 263,000 new customers over the year, compared to 173,000 in 2020.

“The recovery in the Group’s financial performance in 2021 has been very encouraging,” said 4imprint Group chairman Paul Moody.

“Most importantly, it was driven by decisions and actions fully aligned with the Group’s strategy, culture and focus on the sustainability of the longer-term health of the business.”

“Challenges continue with regard to the ongoing pandemic, supply chain disruption and inflationary pressures.”

“However, the Group has a clear strategy and is financially strong.”

“Trading results in the first few weeks of 2022 have been encouraging.”