Rolls-Royce poised for strong profit rebound in second half

​​​Rolls-Royce on track for significantly improved operating profits.

​British engine maker Rolls-Royce is on track to deliver significantly improved operating profits in the second half of 2022, according to forecasts.

​The company's major business units are all expected to contribute to the better performance, led by a recovery in commercial aerospace and defence work.

​Rolls-Royce's operating profit for the second half of the year will likely come in around £830 million, a major increase from £527 million in the second half of 2021. The gains are being driven primarily by the company's civil aviation segment, where wide-body flying activity has rebounded robustly.

​Within civil aviation, Rolls-Royce is forecasting original equipment revenue to climb approximately 7% to £1.4 billion in the second half. More importantly, higher-margin aftermarket service revenue is projected to jump 16% to £2.4 billion. The company is also benefiting from increased business jet engine deliveries.

​The defence unit is poised to see its operating profit hit £298 million, as military spending ramps up in Europe and the Middle East amid the conflict in Ukraine. Rolls-Royce is well-positioned to capitalise on demand for defence services, which offer superior margins.

​Meanwhile, the power systems division is likely to post a 31% increase in operating profit to £213 million. Growth is expected to be powered by strong gains in aftermarket activity.

​Across its major business units, Rolls-Royce is demonstrating an ability to translate increased demand, particularly for high-value aftermarket work, into significantly better profitability. The second half rebound solidifies a recovery story for the company after a turbulent period marked by the pandemic's impact on commercial aerospace.

​With its outlook brightening, Rolls-Royce appears on course to continue rebuilding its balance sheet and financial performance. Investors are likely to cheer the better-than-expected profits as a sign of the company's progress in executing its turnaround strategy.

​Analyst ratings for Rolls Royce

​Refinitiv data shows a consensus analyst rating of ‘buy’ for Rolls Royce with 4 strong buy, 10 buy, 4 hold and 1 sell – and a mean of estimates suggesting a long-term price target of 357.35 pence for the share, roughly 8% higher than the current price (as of 19 February 2024).

​Technical analysis of the Rolls Royce share price

​Rolls Royce’s share price remains on track for its August 2018 peak at 379.0p, judging by the swift near 385% ascent it has seen from its October 2022 low.

​The British multinational aerospace and defence company’s share price is now grappling with its August 1997 and February 2019 peaks at 341.3p to 344.4p which may short-term, act as resistance.

​Rolls Royce Monthly Candlestick Chart

​On the daily chart the Rolls Royce share price, which has risen by more than 10% year-to-date, continues to break through resistance and thus advance.

​Rolls Royce Daily Candlestick Chart

​Monday’s rise above the 8 February high at 325.7p is another stepping stone towards the August 2018 high at 379.0p.

​While the October-to-February uptrend line at 306.3p underpins, the medium-term uptrend will remain intact.

​For long-term bullish momentum to be maintained, the Rolls Royce share price should ideally remain above its mid-December low at 287.3p.