The past five years have been tough for Rolls-Royce (LSE: RR). Even in 2019, before the pandemic, the aerospace firm reported large operating losses. This was mainly due to a £1.4bn exceptional charge linked to problems with its Trent 1000 engine. The pandemic has since led to further problems as the airline industry almost completely ground to a halt in 2020. Given these problems, an investment in the company five years ago would have been a bad one.
So, what are the figures?
Exactly five years ago, the Rolls-Royce share price sat at 653p. This means that with £1,000, somebody would have been able to buy around 153 Rolls-Royce shares. The share price has seen an 81% decrease from this level and is currently just 125p. Therefore, 153 shares of Rolls-Royce at its current price would only amount to £191.25, equivalent to an £808.75 loss. This demonstrates some of the risks in investing in stocks, especially in volatile sectors such as aerospace.
Fortunately, although dividend payments are currently barred under the company’s loan agreement, it has made some in the past. Indeed, since January 2017, the firm has paid out 35.1p per share. This means that shareholders would also have made £53.70 from dividend payments in this period. But while this helps to eliminate some of the losses, a £1,ooo investment in Rolls-Royce would still only total around £245 today.
Can the future for Rolls-Royce shares be any better?
Clearly, the past performance of Rolls-Royce has been pretty dreadful. But past performance does not necessarily equate to future performance. Indeed, while the risks of the pandemic remain prominent, there are still a few positives for the aerospace and defence company.
For one, it’s currently working hard on restoring its balance sheet. This has included the €1.7bn sale of its ITP Aero business in Spain to Bain Capital, and most recently, a €91m sale of its Bergen Engines business to Langley Holdings. All in all, it hopes to raise around €2bn from asset sales, which will be used to reduce debt. This will hopefully enable it to regain an investment-grade credit rating, so that it can borrow money more cheaply.
Despite the emergence of the Omicron variant, things are also starting to look more positive in its core business. In fact, in the third quarter it saw a return of positive free cash flow. Further, through the company’s restructuring programme, it also expects to achieve around £1.3bn in savings by the end of 2022. This could help the firm’s profitability in the long term.
I think that its situation is likely to be far better in the next five years than in the past five. While several short-term issues remain, especially the fact that large engine flying hours are still only 50% of pre-pandemic levels, Rolls-Royce has still navigated the pandemic well. For the long-term future, I may, therefore, add some Rolls-Royces shares to my portfolio.
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Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
