On Thursday, Rolls Royce issued their Q1 2023 trading update and provided insight into recent sales activity and outlook for the rest of the year.
Rolls Royce said they were keeping operating profit guidance of £0.8-£1.0bn and free cash flow guidance of £0.6-£0.8bn unchanged.
The company noted its civil aerospace business unit was approaching pre-pandemic levels and several awards in their defence unit. Rolls Royce alluded to progress in their transformation strategy and robust customer demand.
Despite reasonable operational progress, Rolls Royce shares were down 3.5% at the time of writing on Thursday following the release.
Analysts suggested the new CEO’s honeymoon period was coming to an end, and investors took the opportunity to book profits after a strong run in the stock.
“Tough talk which suggested he got the seriousness of the challenge facing the company and a decent first set of numbers took new Rolls-Royce CEO Tufan Erginbilgic a long way with the market,” said Russ Mould, investment director at AJ Bell.
“However, today’s trading update saw the first sign of investors taking a tougher line.
“There was nothing to really frighten the horses, trading is in line and the company’s key aerospace business is mirroring the recovery in the wider aviation sector to edge back towards pre-pandemic levels.
“A fall in the share price may just have represented some profit taking after an exceptionally strong run for the stock, but there were some less than positive hints in the statement.”
Mould continued to explain the lack of news on their new business segment, which includes small modular reactors, as another possible reason for investor disappointment.
“Perhaps most significantly there was nothing on the company’s New Markets business – which encompasses its investments in areas like small modular reactors (seen as a cheaper and quicker way of developing nuclear power) and electrical aviation.
“On this front, recent news the development of small modular reactors in the UK will be put out to public tender was a blow for Rolls. Its participation in this process was seen as a potential slam dunk but now international rivals could swoop in and take a piece of the action.”