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Rolls Royce shares are 8.5% to the good this morning, potentially on course for their best daily gain in almost 18 months (12 Feb 2016, +14%). The jump comes after first half results revealed a better than expected return to profitability (H1 last year impacted by Brexit vote GBP plunge hurting currency hedges), propelling the shares above recent 940p resistance to test 980p – their highest in over two years. With the shares +45% YTD (biggest UK Index climber), bulls are already looking towards highs of 1060p from Apr/May 2015 and 1275p at end-2013.
Whilst FY guidance for profits and cash flow remains unchanged, investors are relieved at the implication that earnings will be better balanced this year, in other words slightly less skewed towards the second half. An upgrade of sorts that offers potential for a bullish revision to FY guidance later in the year and/or a surprise beat of FY guidance. More importantly it suggests the turnaround strategy is working and quashes some of yesterday’s cash-flow concerns, although the CFO does caution that some first half benefits may not necessarily be repeated and that headwinds continue to blow.
Mike van Dulken, Head of Research, 1 Aug 2017
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