Analyst Note
| Joachim Kotze |Narrow-moat Rolls-Royce expects to beat its previous guidance of GBP 2 billion free cash outflow for 2021. This is largely due to a timing issue related to GBP 300 million of concession payments now expected to be made in 2022, so the quality of the beat is questionable. Management also made no mention of the previous GBP 750 million positive free cash flow guidance, which was already pushed out at the group’s first-half results due to delays in the recovery of wide-body engine flying hours. The group is tracking ahead of expectations with its GBP 1.3 billion cost-saving program, which will see it shed 8,500 roles, and is expected to be completed by end-2022. We make no changes to our GBX 115 (ADR: $1.60) fair value estimate as our forecasts already err on the side of caution. Shares appear fully valued at current levels.