FTSE 100 earnings: what can we expect from Rolls-Royce in 2024?

Engineering group Rolls-Royce Holdings (LSE: RR) was the top-performing share within the FTSE 100 in 2023, delivering a acquire of 220%.

Investor sentiment was boosted via the yr by some bullish updates from chief govt Tufan Erginbilgic, who took cost at first of final yr.

Can buyers anticipate a repeat run in 2024? Right here’s my tackle what we are able to anticipate – and what might occur to set off a pointy transfer within the share worth.

Erginbilgic has already supplied the market with pretty clear steerage on what to anticipate in Rolls-Royce’s 2023 outcomes. The corporate has supplied some medium-term targets it hopes to hit by 2027 too.

The group’s 2023 outcomes — due on 22 February – will give buyers an opportunity to verify progress towards administration steerage. They need to additionally embody an up to date outlook for 2024.

Huge progress forecasts!

Again in August 2023, Rolls-Royce upgraded its full-year outlook, telling buyers to anticipate an underlying working revenue of £1.2bn-£1.4bn for 2023.

And by 2027, Erginbilgic expects working revenue to have elevated to £2.5bn-£2.8bn. Primarily based on the present market cap of £28bn, that may worth the enterprise on about 10 occasions working revenue, which doesn’t look costly to me.

Rolls-Royce has warned that progress towards these targets might be “progressive, however not essentially linear”. In different phrases, there may very well be bumps alongside the street.

Even so, Metropolis analysts have translated the corporate’s steerage into earnings forecasts that recommend very robust progress over the subsequent couple of years.

These are the most recent dealer forecasts I can discover:

Buyers have identified about these numbers for some time, so in idea, Rolls’ share worth ought to already mirror this outlook.

As a possible investor, what’s necessary for me is to think about whether or not something new may emerge to vary this outlook — and justify the next (or decrease) share worth.

What might change?

There are two foremost issues I’ll be searching for in commentary from Rolls-Royce over the approaching weeks and months.

First, the 2024/25 buying and selling outlook. Rolls-Royce’s final market replace was in November. I’d be stunned if something vital has modified since then within the firm’s outlook for this yr. However issues might change because the yr unfolds.

Any enchancment in steerage might set off additional good points, however I believe that any shortcomings can be severely punished.

On dividends, dealer forecasts recommend shareholders might obtain a payout of round 2p per share in 2024, rising to three.5p in 2025.

So far as I do know, the corporate hasn’t supplied any steerage on dividends but. I’d anticipate to see one thing this yr. This may immediate some buyers to reposition their Rolls-Royce holdings.

Would I purchase Rolls-Royce immediately?

I believe Rolls-Royce may very well be a extra priceless enterprise in just a few years’ time. However within the quick time period, I consider the share worth might be up with occasions.

After such a robust run final yr, my feeling is that the shares might take a breather for some time, except the corporate points any additional upgrades to its steerage.

I’m going to remain on the sidelines for now and hope for a greater alternative – though I recognise that I’d miss out within the meantime.