Picasso Posted December 13, 2015 Share Posted December 13, 2015 I really don't like Rolls anymore. I mentioned the impact of energy early in the thread and no one cared about it. I mentioned the inefficiencies and no one cared. I mentioned the Lone Pine short and no one cared. This is more about cloning Sequoia or ValueAct versus understanding the black box which is their business. Maybe the sharp reduction in the share price has fixed some of those issues, I don't know. I think ValueAct has a view that the energy downturn is cyclical given their exposure to BHI and HAL. I think they said as much recently but I can't recall the specifics. So if you are following ValueAct you have to agree from that angle as well. This energy mess seems a lot more secular than cyclical to me but what do I know.... Greenwood put some good effort into their bull thesis but a lot of it has turned out to be wrong. Meanwhile GE looks best positioned to dominate in this space. This is like owning AXP versus V. Funny how ValueAct is also in AXP.... Link to comment Share on other sites More sharing options...
TheAiGuy Posted December 13, 2015 Share Posted December 13, 2015 It's imprecise in terms of valuation. It probably should be PV of backlog plus PV of legacy as the minimum value (because they will add to the backlog over time presumably). The problem is there isnt too much visibility into those CFs. This is a valuable business that will exist decades from now. The question is how valuable is it? And will management doing something somewhat smart in the near term to counteract drags? Not cutting the dividend and raising debt is questionable to me. And on the call, not giving clear timelines on when this becomes FCF positive was negative because it made me think they are much more tied to the cycle than I thought, which is proving to be a little unpredictable right now. It's probably a question of price and I should work a little more on valuation here. It's just how do you get a sense of CF? Edit: Interestingly enough this company has turned out to be very levered to oil. If we get a rebound there, we should see some businesses come back to life. All good points, thanks. In terms of CF of the CA business -- its CF negative, now and the PV of the backlog is also negative on a CF basis. All of the accounting profit is pretty much a leap of faith that the service revenue will make it work out in the end. The other problem is that CA is really many business, the legacy lines are CF positive and the new lines are CF negative. Eyeballing it, they've typically paid out ~1/3 of their profits to shareholders, which seems fine/consistent for a company that is growing. The thing is, b/c there isn't a good reference point on the CFs, it seems easy to wildly miss on the valuation. It also looks like that, given the state of their operations and competitive position, RR is under earning. Link to comment Share on other sites More sharing options...
TheAiGuy Posted December 13, 2015 Share Posted December 13, 2015 I really don't like Rolls anymore. I mentioned the impact of energy early in the thread and no one cared about it. I mentioned the inefficiencies and no one cared. I mentioned the Lone Pine short and no one cared. This is more about cloning Sequoia or ValueAct versus understanding the black box which is their business. Maybe the sharp reduction in the share price has fixed some of those issues, I don't know. I think ValueAct has a view that the energy downturn is cyclical given their exposure to BHI and HAL. I think they said as much recently but I can't recall the specifics. So if you are following ValueAct you have to agree from that angle as well. This energy mess seems a lot more secular than cyclical to me but what do I know.... Greenwood put some good effort into their bull thesis but a lot of it has turned out to be wrong. Meanwhile GE looks best positioned to dominate in this space. This is like owning AXP versus V. Funny how ValueAct is also in AXP.... Yeah, the Greenwood thesis was ridiculous. I kinda like the inefficiencies and leverage to energy, though, b/c I view those as fixable problems and there is a new CEO and and activist. They don't have to grow users for a dying internet firm or get people to shop in a terrible old shopping mall, which I think are much harder problems. Link to comment Share on other sites More sharing options...
TheAiGuy Posted December 14, 2015 Share Posted December 14, 2015 http://www.ft.com/intl/cms/s/0/41a4756a-a1a2-11e5-bc70-7ff6d4fd203a.html#axzz3uH45J9v8 Edit: another sources, with some independent reporting: http://www.bbc.com/news/business-35094446 Link to comment Share on other sites More sharing options...
TheAiGuy Posted December 15, 2015 Share Posted December 15, 2015 Management shake up: http://www.ft.com/intl/cms/s/0/fafa429e-a349-11e5-8d70-42b68cfae6e4.html http://www.ft.com/intl/cms/s/0/92311d22-a354-11e5-8d70-42b68cfae6e4.html Link to comment Share on other sites More sharing options...
fareastwarriors Posted December 16, 2015 Share Posted December 16, 2015 Management shake up: http://www.ft.com/intl/cms/s/0/fafa429e-a349-11e5-8d70-42b68cfae6e4.html http://www.ft.com/intl/cms/s/0/92311d22-a354-11e5-8d70-42b68cfae6e4.html Rolls-Royce to Restructure Management in Cost-Cutting Drive http://www.nytimes.com/2015/12/17/business/international/rolls-royce-to-restructure-management-in-cost-cutting-drive.html?ref=international&_r=0 Link to comment Share on other sites More sharing options...
fareastwarriors Posted December 21, 2015 Share Posted December 21, 2015 Management shake up: http://www.ft.com/intl/cms/s/0/fafa429e-a349-11e5-8d70-42b68cfae6e4.html http://www.ft.com/intl/cms/s/0/92311d22-a354-11e5-8d70-42b68cfae6e4.html Rolls-Royce to Restructure Management in Cost-Cutting Drive http://www.nytimes.com/2015/12/17/business/international/rolls-royce-to-restructure-management-in-cost-cutting-drive.html?ref=international&_r=0 Rolls-Royce chief voices ‘disquiet’ over diesel engine business http://www.ft.com/intl/cms/s/0/bc3650c8-a729-11e5-955c-1e1d6de94879.html#axzz3uzQhw0CC The bloom is off Rose’s legacy at Rolls-Royce http://www.ft.com/intl/cms/s/0/6b861958-a56a-11e5-97e1-a754d5d9538c.html#axzz3uzQhw0CC Link to comment Share on other sites More sharing options...
muscleman Posted December 22, 2015 Share Posted December 22, 2015 I really don't like Rolls anymore. I mentioned the impact of energy early in the thread and no one cared about it. I mentioned the inefficiencies and no one cared. I mentioned the Lone Pine short and no one cared. This is more about cloning Sequoia or ValueAct versus understanding the black box which is their business. Maybe the sharp reduction in the share price has fixed some of those issues, I don't know. I think ValueAct has a view that the energy downturn is cyclical given their exposure to BHI and HAL. I think they said as much recently but I can't recall the specifics. So if you are following ValueAct you have to agree from that angle as well. This energy mess seems a lot more secular than cyclical to me but what do I know.... Greenwood put some good effort into their bull thesis but a lot of it has turned out to be wrong. Meanwhile GE looks best positioned to dominate in this space. This is like owning AXP versus V. Funny how ValueAct is also in AXP.... Similar thoughts here. I never understood how great the total care contract economics are, and I can't understand GW's bull thesis. Link to comment Share on other sites More sharing options...
TheAiGuy Posted February 12, 2016 Share Posted February 12, 2016 Full Year results are out: http://www.rolls-royce.com/investors/results-centre/all-results-and-updates/yr-2015.aspx I haven't looked at this in depth, but the big things that stand out to me are 1) positive FCF in 2015, 2) negative (but manageable) FCF projected for 2016, 3) dividend cut. Seems pretty positive -- my biggest concern was they would need to do an equity raise at depressed prices to maintain an investment grade rating -- that seems off the table for now. Market seems to like the results, overall. Link to comment Share on other sites More sharing options...
fareastwarriors Posted February 12, 2016 Share Posted February 12, 2016 http://www.bloomberg.com/gadfly/articles/2016-02-12/rolls-royce-repair-job-only-half-the-story Link to comment Share on other sites More sharing options...
Phaceliacapital Posted February 23, 2016 Share Posted February 23, 2016 https://foragerfunds.com/bristlemouth/rolls-royce-and-the-pliable-nature-of-reporting/ Link to comment Share on other sites More sharing options...
TheAiGuy Posted March 4, 2016 Share Posted March 4, 2016 http://www.thisismoney.co.uk/money/markets/article-3475478/Rolls-Royce-s-new-everyman-boss-shuns-outrageous-perks-past-shaming-predecessor-austere-approach.html Link to comment Share on other sites More sharing options...
fareastwarriors Posted May 20, 2016 Share Posted May 20, 2016 Bribe inquiry highlights Rolls-Royce’s cultural challenge http://www.ft.com/intl/cms/s/0/df5d21be-1d24-11e6-b286-cddde55ca122.html#axzz4929E5pJi Link to comment Share on other sites More sharing options...
sleepydragon Posted May 22, 2016 Share Posted May 22, 2016 hi guys, how come nobody is talking about their fx risk? Their 2015 reported profit is only 160 pounds. They have a huge 1 billion unrealized lose on their fx contract shorting dollar Why they have such a huge fx risk? It seems the fx risk dominate this company's earning? Why nobody is talking about this? Thanks! Link to comment Share on other sites More sharing options...
topofeaturellc Posted May 22, 2016 Share Posted May 22, 2016 They structurally have a big FX mismatch between revenues and costs. The hedge book is them attempting to mitigate the risk. Link to comment Share on other sites More sharing options...
sleepydragon Posted May 22, 2016 Share Posted May 22, 2016 They structurally have a big FX mismatch between revenues and costs. The hedge book is them attempting to mitigate the risk. Yes, i understand that. But the exposure is shocking. How come coke doesnt have such problem? Maybe they shall just not hedge at all or maybe move their factory to US to natural hedge this. It seems they lost 1bn in 2014 and another 1bn in 2015 from their hedge book Link to comment Share on other sites More sharing options...
rb Posted May 22, 2016 Share Posted May 22, 2016 Coke doesn't have this problem is because they're way more currency diversified and Coke has tons of costs in the local currency where they sell. In the case of RR most of the sales are in USD and most of the costs are in GBP and the stock is in GBP. As the previous poster said. It's just a thing with this company. In my opinion it's not that big a deal. But if you're really concerned about it you can reverse or modify the hedges on your own. Link to comment Share on other sites More sharing options...
TheAiGuy Posted May 22, 2016 Share Posted May 22, 2016 Just to add to rb's point, the economies the cost structure are very different than of coke. Engine development and manufacture have very high fixed costs with high complexity / low unit volume -- it makes sense to have a single factory for each specialized procedure/component in the manufacturing process. Coke is the other way around with low complexity / high unit volume -- having duplicate factories all over the world, like coke does, is not feasible. Ultimately, RR is a British company with British shareholders and managers and was bailed out by the British government with British public funds. Their cost structure isn't going overseas. They do have facilities all over the world, and especially in the US, but hedging is their best option if they are agnostic to future currency price movements. And they *should* be agnostic to future currency price movements, as no one is paying the executive team to make currency bets. That went against them in 2014 and 2015, but 2016 looks better. Overall, most of the accounting gains and losses are non-cash adjustments to the fair-value of derivative contracts. It's a fairly big derivates book (~29 Billion pounds) so these movements look meaningful. To the extent the derivatives book locks in a future known cost/gain in pounds vs dollars, fair value adjustments offset a future gain/loss from currency movements (assuming they've properly hedged). Link to comment Share on other sites More sharing options...
sleepydragon Posted June 2, 2016 Share Posted June 2, 2016 according to this page: http://www.sequoiafund.com/FundComm.pdf RR is in their top 10 holdings. Does anyone remember seeing the last quarter's commentary? Was RR a top 10 holding back then? Or maybe they added? Link to comment Share on other sites More sharing options...
rb Posted June 2, 2016 Share Posted June 2, 2016 RR's been a top 10 holding for a long time Link to comment Share on other sites More sharing options...
TheAiGuy Posted June 15, 2016 Share Posted June 15, 2016 A350 deliveries are still behind: http://www.ft.com/intl/cms/s/0/fcb9575a-31c9-11e6-ad39-3fee5ffe5b5b.html#axzz4Bep5iwO3 but see: http://www.bloomberg.com/news/articles/2016-06-15/plane-seat-supplier-zodiac-jumps-as-airbus-a350-logjam-eases Link to comment Share on other sites More sharing options...
TheAiGuy Posted July 28, 2016 Share Posted July 28, 2016 I came across this: Previously, Rolls-Royce has brought forward profits from long-term aftersales service contracts, to make up for the fact that many aero-engines are initially sold at a loss. Roughly 50 per cent of Rolls-Royce’s civil aerospace sales are generated by aftersales service contracts. The new accounting rules come into force in 2018 and will specify how and when a company can recognise revenue from contracts. The group had previously suggested that it was too early to interpret how the rules would affect its business model, as they were still under discussion. “The initial indication seems to be a much stricter interpretation [of the rules],” said Nick Cunningham, of Agency Partners. “That could have a bigger impact as it would mean waiting five-plus years from delivery of the lossmaking engine to booking the first after-market profits.” Sandy Morris, of investment bank Jefferies, said the changes could have a “significant impact” on earnings. http://www.ft.com/cms/s/0/311bbde4-549d-11e6-befd-2fc0c26b3c60.html It's weird to me that an accounting for revenue recognition would be such a big deal to analysts. The revenue recognition process isn't new and the accounting change doesn't effect cash flow or the economics of the situation. Link to comment Share on other sites More sharing options...
bbarberayr Posted September 2, 2016 Share Posted September 2, 2016 From Sequoai's investor day, a recap of the story: http://www.marketfolly.com/2016/08/ruane-cunniff-sequoia-fund-investor-day.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MarketFolly+%28Market+Folly%29 Link to comment Share on other sites More sharing options...
VersaillesinNY Posted November 2, 2016 Share Posted November 2, 2016 How Rolls Royce Bribed Its Way Around the World - BBC Panorama documentary 10/31/16 https://www.youtube.com/watch?v=7_6WmL-Wno0 No big defense deal takes place without money changing hands, defense deals are big deals. Facility payment or commission, that's the way it works. Link to comment Share on other sites More sharing options...
fareastwarriors Posted November 18, 2016 Share Posted November 18, 2016 Emirates Says Rolls-Royce’s A380 Engines Not Up to Standard http://www.bloomberg.com/news/articles/2016-11-18/emirates-says-rolls-royce-a380-engines-not-up-to-agreed-standard Link to comment Share on other sites More sharing options...
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