Rolls-Royce Performing in Line With Expectations as Flying Hours Recover From a Low Base

Narrow-moat Rolls-Royce’s trading update for the first four months of the year was light on information. Outgoing CEO Warren East said the performance is in line with expectations and full-year guidance is maintained. As a reminder, full-year guidance as communicated in February for slightly higher revenue and flat margins disappointed investors as they expected the global recovery in flying hours to have a more meaningful impact on financials. Rolls-Royce is trying to sell the long-term story of growth in its new markets segment, which includes electric planes and small modular nuclear reactors. Although we believe Rolls-Royce has the capabilities to invest in these growing markets, they are far from being commercially viable and the medium-term prospects of the group will rest on the performance and recovery of the civil aerospace segment.