Rolls Royce(US:RYCEY) Seeking Alphaยท2024-08-12 01:27Core Viewpoint - Rolls-Royce, despite a significant price increase of 132.5% over the past year, shows strong potential for continued growth due to robust financial performance and advancements in the decarbonisation economy [1] Financial Performance - Healthy revenue growth: Rolls-Royce reported a year-on-year revenue growth of 19% in H1 2024, supported by a 27% increase in the civil aerospace segment, which accounts for half of the company's revenues [3] - Margins improve: The gross margin increased to 24% from 21% in 2023, while the operating margin rose to 14% from 10.3% last year, leading to a net profit margin increase to 9% from 7.4% [4] - Upgraded outlook: The company has raised its operating profit guidance to a range of GBP 2.1-2.3 billion, representing a 119% increase at the midpoint from the previous range of GBP 1.7-2 billion [5] Stock Metrics - Dividends and market multiples: Rolls-Royce plans to resume dividend payments after five years, with a payout ratio of 30% of underlying post-tax profit in 2024, and a projected forward dividend yield of 1% [6][7] - The expected underlying net profit for 2024 is GBP 1.4 billion (USD 1.8 billion), indicating a forward non-GAAP price-to-earnings (P/E) ratio of 29.2x, which is favorable compared to the five-year average of 42.75x, suggesting approximately 45% upside potential [8] Decarbonisation Goals - Progress on decarbonisation: Rolls-Royce aims for net-zero emissions from its operations by 2030, having achieved a 40% reduction in greenhouse gas emissions over the past decade [9] - Recent developments: The company is developing a hydrogen fuel-compatible engine and has made strides in battery storage solutions, including a partnership with Encavis for large-scale battery storage [10] - Nuclear energy initiatives: Rolls-Royce is advancing its small modular reactors (SMRs) project, having reached the final stage of the generic design assessment, and is shortlisted to provide SMRs to Sweden [12]