Rolls-Royce Holdings (LSE: RR.) shares spiked upwards in February. And unlike some other early risers this year, they stayed there.
Keeping promises
This was due to 2022 FY results. Or, more specifically, that Rolls lived up to its promises.
We’d been led to expect positive cash flow in the second half, and we got exactly that. We saw free cash flow of £505m, after a cash loss of £1.5bn the year before.
Will we see more progress this year? Well, H1 results for 2023 are due in early August. And a lot could depend on what they hold.
I reckon there are a few key things that investors will likely be looking for. But I really don’t expect anything exciting.
2023 outlook
Rolls-Royce has been sticking to its early guidance for 2023.
That includes an underlying operating profit of £0.8bn to £1.0bn. Free cash flow guidance comes in at £0.6bn to £0.8bn, and that isn’t really a lot higher than in the turnaround year of 2022.
But if the firm delivers on it, will that be enough for folk to push Rolls-Royce shares higher? I’m not sure it will, for a couple of reasons.
For one, the firm says its cash flow should be weighted towards the second half. That means the H1 figure might look a bit disappointing. I think we’d need to see an uprating of the full-year outlook for any major share price movement.
Debt
My other reason is that big share price killer, debt. The positive cash flow posted for 2022 did one key thing. It eased fears that Rolls was still going to need more cash injections to keep it going.
In fact, the firm paid down close to £2bn in debt over the year. And that will surely have led to huge sighs of relief. But is it sustainable?
Much of the 2022 debt repayment came from disposals. From 2023 onwards, debt reduction is going to have to come from profit and cash flow.
And so far, we haven’t heard a lot about how that’s going so far this year.
Long-term change
What it will take for Rolls-Royce shares to hit a new bull run and keep going, I think, is one key thing. And that’s a clearer picture of what the company is going to look like in the longer term.
Rolls is still very much in the midst of what it calls its transformation. At AGM time in May, the board said: “Our strategic review is on track and as previously indicated, we will communicate the findings and medium term targets in the second half of 2023“.
We might get some hints with the H1 update. But it sounds like we’ll have to wait a while yet to see what the flesh on the bones is going to look like.
Share price?
So what will the Rolls-Royce share price do when the H1 figures are out?
Well, I don’t know. And I actually don’t care that much. That’s because it really won’t help me get a handle on long-term share valuation.
Until I can do that, Rolls-Royce shares remain very much a ‘wait and see’ for me.
