Research Update: Rolls-Royce PLC Upgraded To 'BB+' As Credit Metrics Improve And Free Cash Flow Set To Increase; Outlook Positive

Rolls-Royce recently affirmed its guidance for operating profit and cash flow generation for 2023, and we expect the steadily improving operating performance to show further upside to credit metrics in 2024, driven by increasing engine deliveries and higher aftermarket activity with rising engine flying hours. We expect S&P Global Ratings-adjusted EBITDA margins to rise toward 16% in 2023 (12.8% in 2022) and closer to 16.5% in 2024, with free operating cash flow generation (FOCF) of more than £900 million this year and close to £1.5 billion in 2024. At the same time, we expect Rolls-Royce to prudently manage its balance sheet, leading to adjusted debt to EBITDA of nearly 1.5x in 2023 and close to 1x in 2024, as well

...- Rolls-Royce recently affirmed its guidance for operating profit and cash flow generation for 2023, and we expect the steadily improving operating performance to show further upside to credit metrics in 2024, driven by increasing engine deliveries and higher aftermarket activity with rising engine flying hours. - We expect S&P Global Ratings-adjusted EBITDA margins to rise toward 16% in 2023 (12.8% in 2022) and closer to 16.5% in 2024, with free operating cash flow generation (FOCF) of more than ú900 million this year and close to ú1.5 billion in 2024. - At the same time, we expect Rolls-Royce to prudently manage its balance sheet, leading to adjusted debt to EBITDA of nearly 1.5x in 2023 and close to 1x in 2024, as well as funds from operations (FFO) to debt strengthening to above 45% for both years. - We therefore raised our long-term issuer credit rating on Rolls-Royce PLC to '##+' from '##' and affirmed the 'B' short-term rating. Additionally, we raised the issue rating on Rolls-Royce's...

Research Update