Research Update: Rolls-Royce PLC Upgraded To 'BB' On Strong Operating Performance And Positive Cash Flow Generation; Outlook Positive

Rolls-Royce exhibited a strong operating and financial performance in 2022. The group improved its profitability, applied disposal proceeds to reduce debt, and its free operating cash flow (FOCF) turned materially positive. For 2023, we forecast S&P Global Ratings-adjusted EBITDA rising to more than 13.0%, and that the group will sustain FOCF of £700 million-£800 million. At the same time, we expect that Rolls-Royce's adjusted funds from operations (FFO) to debt will strengthen to more than 40% in 2023, from 33.5% in 2022, and that debt to EBITDA will be below 2x. We therefore raised our long-term issuer credit rating on Rolls-Royce PLC to 'BB' from 'BB-' and affirmed the 'B' short-term rating. Additionally, we raised the issue rating on Rolls-Royce's

...- Rolls-Royce exhibited a strong operating and financial performance in 2022. The group improved its profitability, applied disposal proceeds to reduce debt, and its free operating cash flow (FOCF) turned materially positive. - For 2023, we forecast S&P Global Ratings-adjusted EBITDA rising to more than 13.0%, and that the group will sustain FOCF of ú700 million-ú800 million. - At the same time, we expect that Rolls-Royce's adjusted funds from operations (FFO) to debt will strengthen to more than 40% in 2023, from 33.5% in 2022, and that debt to EBITDA will be below 2x. - 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 senior unsecured debt to '##' from '##-'. The recovery rating remains '3' (rounded estimate: 65%). - The positive outlook reflects that we could raise the ratings in the next 12-18 months if we see a positive track record of strong...

Research Update