Key points:
- There have been rumours that Rolls Royce could be bid for in part
- There are always rumours in markets, mostly they’re just rumours
- But has RR recovered enough that there really could be a bid?
- Rolls Royce Shares Plunged 10.1% as Takeover Rumours Wear Off
Rolls Royce (LON: RR) shares have not had a good time of it during the pandemic and lockdowns. This is unsurprising given the cornerstone of the business, the jet engines that keep the global aviation business in the air. However, now that all is opening up again, thought does have to be given to what happens next.
There have been rumours of a bid for at least a part of Rolls Royce. One started with a market intelligence firm, Betaville, last week and the Rolls Royce share price jumped 10% on it. It’s fallen back again but that even just that, an unsupported rumour, drives a share price move like that shows that the idea isn’t unthinkable. There’s a general belief around that something like that could happen – otherwise, just the rumour wouldn’t have moved the price.
As to why it’s worth considering the basic business structure here. Yes, of course, RR sells jet engines. But that’s not where the cream of the business is. That’s in maintaining such engines after that first sale. In fact, Rolls Royce charges an airline for each hour that engine spends in the air. That’s why the business took such a hit when the fleets were grounded. It’s also why there could be a considerable resurgence as the airlines start flying again.
Also Read: How To Buy Rolls Royce Shares
It’s also true that the Rolls Royce engines are used in many ‘planes – but there’s a definite weighting to the long-distance and intercontinental market. Which is, as we know, the last part of the airline business to get back up and running again.
That the airline business is waking up again does mean that orders for new aircraft, thus engines, are starting again. But as above, that’s not really the short term ginger behind the Rolls Royce business. Hours of engines in the air is what makes that considerable difference to RR income. That’s rising strongly, from lockdown lows, so we’d expect the performance to improve.
It’s exactly this which is driving rumours. What if a bidder thought this would produce a step change in financial performance and the share price? So, buy the company – or a part of it, or a significant stake – now and ride that improvement? It’s possible, even if it is just rumours at present.
As for the longer term, there’s interest in those moular nuclear reactors that Rolls Royce has been developing. Current energy market events are making a new roll out of nuclear greatly more attractive.
There are, therefore, reasons why Rolls Royce, just as a simple investment, could be attractive. Prospects look good, there’s a recovery from lockdown lows to come and so on. The short-term excitement, if there is to be any, will be from suppositions about who might desire to short circuit this by buying some or all of the company itself in a wholesale transaction. Will it happen? Of course no one knows but the very volatility of the Rolls Royce share price when rumours swirl shows that the market thinks it possible.
