I recently covered Rolls Royce (RR.) as being worth a look as a long term investment once it had managed to refinance its balance sheet, and news on that front has just arrived. I would argue that the company left it far longer than it should have done in order to sort this out and could probably have got a better deal had it done so earlier, once it became apparent that Covid was going to have a big impact on the company, and its aviation business in particular. The way in which it has refinanced also comes as a bit of a surprise in light of the recent media speculation about Kuwait and Singapore sovereign funds being interested in investing in the company, at a significant level but not high enough to require approval from the British government – it holds a ‘golden share’ and due to the sensitive nature of the business that Rolls Royce engages in has the right to veto any investor looking to take in excess of 15% of the shares in issue.
The news arrived that the company is planning to carry out a fully underwritten 10 for 3 rights issue at 32p to raise up to £2 billion, assuming that is approved by shareholders at a general meeting on October 27. This gives an effective ex-rights share price of around 77p, based on the 130p closing price prior to the announcement of the fundraising activity. Additionally, the company will be raising a further £1 billion from a bond issue, and a new term loan with a two year period for an additional £1 billion.
Pressure on the finances of the company will be reduced even more following the indication by UK Export Finance that it would support the current £2 billion five year term loan (which it guarantees 80% of) being increased by an extra £1 billion. With the current tough market conditions expected to increase into 2021, the company seems to be putting itself in a good position to weather the storm, and has stated that even in a worst case scenario, and allowing for the cost reductions and asset disposals which it has already been making, it would see it through until 2022 when its main markets are expected to bounce back - aviation in particular - and when it is expecting free cash flow for the year to be at least £750 million from its existing business that will be retained.
To me this seems like a sensible approach, and there also seems like a decent chance of a quicker recovery than the company is allowing for. The record date for the rights issue entitlement is close of business on October 23, and given that you can currently buy the shares at a more than 11% discount to the price prior to the news I can see a strong case for buying now and then taking up your rights. Just make sure you keep enough funds in reserve to be able to buy your 32p rights. I would expect to see further short term share price volatility, but rather than trying to trade this, I would be looking at it as a long term recovery play which has a very good chance of coming good, and even more so if you are taking a five year plus view.
Filed under: Rolls Royce, Purplebricks, Scancell, Centamin, Trafalgar Property, Shorted AIM shares
RISK WARNING & DISCLAIMER - FiveFreeShareTips.com tips are provided by independent authors via a common carrier platform and do not represent the opinions of FiveFreeShareTips.com. FiveFreeShareTips.com does not accept responsibility for or make any warranties in connection with or recommend that you or any third party rely on such information. The information available at FiveFreeShareTips.com and via emails you receive from [email protected] are for your general information and use and are not intended to address your particular requirements. In particular, the information does not constitute any form of advice or recommendation by the tipsters or FiveFreeShareTips.com and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Trading shares involves the risk of loss. The tipsters and FiveFreeShareTips.com shall not be liable for any losses or other damages incurred. The value of investments can go up or down and the past is not necessarily a guide of future performance.
Well actually it will be six. One every week day and one on Sunday, each landing with you at 11 AM sharp.
Unlike other services (which may always have a vested interest) we pride ourselves on our impartiality and cover all small caps including AIM. the Standard List, The Wider Main Market and NEX.
We cover small caps, penny shares, FTSE 350 stocks and blue chips. We look for red hot penny shares, Warren Buffett style value investments with yield and growth stocks. There is no technical analysis in our work just solid fundamental analysis from a team of experts with decades of stockmarket experience.
You will not agree with all we publish but if you are interested in small caps you cannot afford to ignore it either. Yo'll never be charged for the free share tips from Five Free Share Tips and given the star writers involved you know that they will move share prices.
There's no telephone number or postal address required and there is no charge, ever, for your Five Free Share Tips membership. Just free shares tips every day apart from Saturday And each day's share tip will not just be a few thoughts cobbled together but will be detailed analysis from experts.
Our experts do not just earn their living from writing. All own shares. If they own shares in a stock they cover they will declare it and will not sell until after advising a sell to our readers. And why not our tips are so good that why shouldn't our readers put their money where their mouth is?
Don't just take our word for it! Judge us on the calibre of our free share tips and join today to start receiving them from September 1 2017. If you don't like what you get delivered to your inbox unsubscribe and you will never hear from us again. So why not give it a go? Sign Up Now
We've put together a panel of top tipsters, including:
Tom Winnifrith, in his 27th year writing about shares, noted fraudbuster & dubbed "The maverick Tipster"
Chris Bailey, City whizz kid turned financial guru, rated as one of the top 50 commentators on shares on twitter, founder of Financial Orbit
Steve Moore, has worked with Tom Winnifrith for all bar 3 weeks of his working life - a noted commentator on value stocks
Malcolm Stacey, The Grandfather of Share Blogging, the founder of ShareCrazy & a best selling autthor of stockmarket books
Lucian Miers, the Bard of the Boleyn, one of the UK's best known short sellers
Gary Newman, writes about value investing on AIM, speciality is in share tips on oil and mining companies
Nigel Somerville, The Deputy Sheriff of AIM, an expert in forensic analysis a skill used to bust frauds but also to tip true value investments
The team from HotStockRockets, specialising in AIM and small cap shares which will fly on a three month view
Remember to book your place at the UK Investor Show 2018. The UK’s top investment show taking place on Saturday 21 April 2018 at the Queen Elizabeth II Conference Centre in Westminster, London. The show will feature a unique line-up of top speakers including Nigel Wray, tech queen Vin Murria, Dave Lenigas, Mark Slater, Tom Winnifrith, Adam Reynolds, Ed, Croft, Nick Leslau Luke Johnson and Dr Johnny Hon as well as 135 exhibiting small cap companies.
The hot share tips given here are of necessity, general. They cannot relate to the individual circumstances of investors. Anyone considering following the share tips contained here should seek independent advice from a Financial Conduct Authority authorised Stockbroker or Financial Adviser. We cannot be held liable if individuals suffer losses through following share tips contained on this site or emailed out as free share tips. The value of investments can go down as well as up. The past is not necessarily a guide to future performance. Investing in shares can lose you part or all of your capital although the potential returns are theoretically unlimited. The difference between the buy share price and the sell share price for smaller company shares (penny shares) can be significant. Profits from dealing in shares may be liable to tax - the level of tax and bases of relief from tax are subject to change. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Some of the shares recommended on this site will be smaller company shares. By their nature such investments can be relatively illiquid and thus hard to trade. And that makes such investments more of a high risk than larger company shares (or 'small caps'/'penny shares'). FiveFreeShareTips.com & its sister site ShareProphets.com defines a smaller company share as any stock traded on AIM or NEX or which has a market capitalisation of less than £300 million.