FTSE 100: Rolls Royce share price and FY earnings results preview

When are Rolls Royce Banking Group’s results expected?

Rolls Royce is set to release its full year (FY) 2022 results on 23 February 2023. The results are for the full year ending December 2022.

What is ‘The Street’s’ expectation for the FY results?

‘The Street’ expectations for the upcoming results are as follows:

Revenue of £11.66 billion : +3.97% year-on-year (YoY)
Earnings per share (EPS) at 0.62 pence : +564% (YoY)

Rolls Royce fundamental outlook

Rolls Royce is flying high with its shares trading up by nearly 14% year-to-date amid China’s re-opening and the country’s civil aviation surging by close to 35% in January when compared to a year ago despite Covid-19 rates hitting all-time highs, even if boosted by the Chinese New Year festival.

Increasing number of flights domestically and internationally in China are important for Rolls Royce’s civil aerospace business, which generates around 40% of underlying revenue, as the engineering company earns money not just from the sale of its engines but also from engine performance hours.

Last week’s announcement that Air India plans to buy a massive 470 aircraft, including 40 Airbus A350 planes, which will have a Rolls-Royce-powered engine, also points to a recovery in the aerospace business from which Rolls Royce should greatly benefit.
These recent developments won’t be showing in Rolls Royce’s full year results ending in December 2022, though, but the board-based power and propulsion provider is expected to show a strong performance in its defence and power business segments due to the nearly year-long war in Ukraine.

Better-than-expected full year results may be seen despite Rolls Royce’s - as of 1 January - new CEO Tufan Erginbilgic’s comments likening the company to a “burning platform” and that a major reshuffle was due as its performance had become “unsustainable.”
Shareholders will also want to see in Rolls Royce’s forward guidance how the company plans to reduce its £4bn mountain of debt which will weigh on its future profitability.

How to trade Rolls Royce into the results

Refinitiv data shows a consensus analyst rating of ‘hold’ for Rolls Royce – 2 strong buy, 3 buy, 9 hold and 4 sell - with the median of estimates suggesting a long-term price target of 110.00 pence for the share, roughly 2% lower than the current price (as of 21 February 2023).

IG sentiment data shows that 94% of clients with open positions on the share (as of 21 February 2023) expect the price to rise over the near term, while 6% of clients expect the price to fall whereas trading activity over this week showed 68% of buys and this month 66% of sells.

Rolls Royce – technical view

Rolls Royce’ share price has only managed to break through its 2018-to-2023 downtrend line in mid-January, as it benefitted from China’s re-opening and increased demand for its products, but since hasn’t made any substantial headway despite trading up by around 13% year-to-date.

Rolls Royce Weekly Chart

Since 2021 the Rolls Royce share price has been oscillating within a roughly 40-to-50 pence band around the 55-week simple moving average (SMA) which continues to point downwards.

Rolls Royce shares have risen by around 80% from their October 2022 lows, though, but seem to be running out of steam below the 23.6% Fibonacci retracement of the 2018-to-2020 descent at 116.12p and the minor psychological 120p mark.

Rolls Royce Daily Chart

Provided that the Rolls Royce share price remains above its 103.20p early February low on a daily chart closing basis, the October-to-February uptrend remains intact.

Were the January high at 115p to be exceeded, the February 2022 highs at 121.70p to 122.72p would be back in sight, a rise above which would engage the January 2022 high at 129.62p, ahead of the September and November 2021 peaks at 148.44p and 150.48p.
A slip through the five-month uptrend line at 105p would most likely lead to a drop below the early February low at 103.20p being seen with a retest of the breached 2018-to-2023 downtrend line, together with the 55-day simple moving average (SMA) at 102.85p to 101.46p representing possible downside targets.

Below it lies a key support zone between the June, July, November and December 2022 highs at 94.80p to 92.76p.

Summary

Rolls Royce is set to release FY 2023 results on 23 February 2023.

FY 2023 results are expected to show a revenue of £18.01 billion, up 14.25% YoY, and EPS at 7.14 pence, down 11.85% YOY.

Revenue is expected to be boosted by higher UK interest rates but may in future slide as Rolls Royce is more susceptible than its UK competitors to a weakening economy, given its greater domestic focus and lack of an investment banking arm, especially if the UK were to head into a recession, the only country expected to do so in 2023 by the IMF.

Long-term broker consensus suggests the share to currently be a ‘buy’, with a median price target of 62.50 pence for the share, roughly 22% higher than the current price (as of 20 February 2023).

88% of IG’s clients with open positions are long the share with trading activity over this week showing 66% of sells but this month 51% of buys.

The Rolls Royce share price started the year off on a strong footing and currently trades around 9% higher than at the end of December but is short-term topping out. Over the next few days, the share may slide further towards the minor psychological 50p mark and the September peak as well as October-to-February uptrend line at 49.85p, all of which are likely to act as support ahead of full-year earnings.

While the five-month uptrend line at 49.85p underpins on a weekly chart closing basis, further upside may be in store with an advance above the current February high at 54.33p possibly taking the Rolls Royce share price towards its January 2022 peak at 56.00p.

Only a slip through the 19 January low at 48.42p would indicate that the five-month advance may have come to an end.