Rolls-Royce shares motoring again following buy back of €1.25bn
Published 20/06/2014 | 02:30
ROLLS-ROYCE shares jumped 7pc after the British aero-engine maker decided to buy back shares worth £1bn (€1.25bn) instead of making any major acquisitions.
The company said it was on track to return to earnings growth next year, reassuring investors whose confidence was shaken by a cut in profit guidance in February and an engine order cancellation this month.
Rolls-Royce shares climbed to 1,076 pence, their highest in over two months, leading Britain's benchmark FTSE 100 index. The stock had lost 17pc of its value over the past six months.
The buy back, equivalent to about 5pc of Rolls-Royce's £19bn (€23.75bn) market capitalisation, will be funded partly by proceeds from the £785m (€981m) disposal of its gas turbine unit to German conglomerate Siemens, agreed in May.
"As no material acquisitions are planned, and reflecting the strength of our balance sheet, we will return the proceeds of the energy sale to our shareholders," chief executive John Rishton, said ahead of an investor day event.
Rolls-Royce had last year considered a bid for Finnish ship and power plant engine maker Wartsila and analysts had said such a deal could re-emerge. Shares in that company, currently worth about €8bn, traded down 3pc.
Rolls-Royce had looked at buying Wartsila as a way to strengthen its Marine engine business, but the idea left some investors wondering whether the company was spending indiscriminately in the pursuit of growth.
The share buy back "shows they 'get' how much the Wartsila story frightened investors", said Edison analyst Sash Tusa.
Rolls-Royce said it would reduce group capital expenditure to 4pc of underlying revenue over the next three to five years from 4.9pc at the end of 2013.