How to Buy Rolls-Royce Stock in 2021
Rolls-Royce is a British engineering company that produces aero-engines. Established in 1904 in Manchester, United Kingdom, the company produces world-class power and propulsion systems and provides maintenance services of engines for companies in the aviation, industrial, and defense sectors.
Although the Rolls-Royce share price fell by 60% over the three years to 2021, at 112p (£1.12) in June 2021, the stock has more than tripled from its October 2020 low of 35p (£0.35). This shows that the post-pandemic market recovery favors the stock.
This article is a guide for those who want to buy Rolls-Royce stock.
Table of Contents
Learn How to Buy Rolls-Royce Stocks in 3 Easy Steps
Find a Broker
You need to open a share dealing account with an online stockbroker to be able to buy the stock. Search for brokers with access to the London Stock Exchange where the Rolls-Royce stock is traded. Also, consider other factors, such as the broker’s platform, trading fees, and user experience.
Analyze the Rolls-Royce Stock Price Chart
Although you have already chosen to buy Rolls-Royce stock, you still need to perform technical analysis to know when to buy the stock. You may wish to buy on a dip or a breakout; technical analysis helps you determine the right support level to buy a dip or the resistance level to trade a breakout.
Place your buy orders when your analysis indicates the right time to buy the stock. You can trade at the market price or use a limit order to buy when the price is no more than your acceptable level. Always ensure that you have a proper risk management strategy in place.
Rolls-Royce Company Overview
Rolls-Royce is an engineering company that started as a car company before adding aero-engine manufacturing to the mix. The company manufactures world-class power and propulsion systems and regularly provides maintenance, repair, and overhaul services to companies in the aviation, industrial, and defense sectors. Rolls-Royce is also involved in artificial intelligence, data analytics, and nuclear energy.
The company operates four business segments: Civil Aerospace, Power Systems, Defence, and ITP Aero. The Civil Aerospace segment designs, manufactures, and sells engines for large commercial aircraft and aviation companies, and provides aftermarket services. The Power Systems segment focuses on producing high and medium-speed reciprocating engines and power generation systems for the marine, defense, and industrial markets. The Defense segment focuses on the production of aero engines for the military. This includes manufacturing aircraft applications, naval engines, submarine nuclear power plants, and aftermarket services. The ITP Aero segment designs, develops, and manufactures aeronautical engines and gas turbines. It also provides maintenance, repair, and overhaul services.
The company is headquartered in London, the United Kingdom. It was listed on the London Stock Exchange in 1987, and it has a market capitalization of $9.4bn as of June 2021.
Rolls-Royce Business Model and Revenue Streams
Rolls-Royce operates perhaps one of the most innovative business models in the aviation industry. Its "power-by-the-hour" business model for its Civil Aerospace segment has changed how aviation companies value engines and offset many operational costs for both company and clients. The company does not sell engines but rather charges airlines for the amount of time they use the engines. Rolls-Royce generates constant revenue by invoicing flying hours, thereby reducing costs through an efficient service concept.
Thus, airlines only pay for the engines' operating hours, as the engine remains the property of Rolls-Royce which also provides maintenance and repairs. With this model, Rolls-Royce has created advantages for itself and its customers and made it possible for low-cost airlines, such as Southwest Airlines, to reduce their cost of operations. It has also ensured that Rolls-Royce staff are still gainfully employed, an enviable feat in an industry known for its huge layoffs. This segment accounts for 49% of the company's revenue.
The second-highest revenue stream is generated from its power system segment, which accounts for 23% of overall revenue. The rise in global clean energy demand, which highlights the need for eco- and climate-friendly power generation, has boosted this segment's financial performance.
Other revenue streams for Rolls-Royce include defense contracts and partnership with the military, which is handled by its defense segment. This segment accounts for 20 percent of the company's revenue. Rolls-Royce is the second largest provider of defense aero-engine products, servicing 160 customers in over 100 countries. The defense segment accounts for 11% of the company’s revenue. Rolls-Royce is invested in oil and gas, as well as nuclear and renewable energy. The company supplies gas turbines and diesel engines for power generation and is developing a strong capability in the civil nuclear power market.
History of Rolls-Royce
Rolls-Royce's origins can be traced to 1884 when Henry Royce started his electrical and mechanized business. Royce developed his first car in 1904 after he met Charles Rolls, a talented engineer who built engines. Impressed with each other’s ideas, the two men formed a new motor car company called Rolls-Royce.
The partnership was officially formalized in 1906 following the first car's success, the six-cylinder Silver Ghost, dubbed the best car in the world. In 1914, Rolls-Royce began developing aeronautic engines for British fighter planes during the first world war. The company developed half of the total horsepower used by the allies during the war. In 1940, at the outbreak of the second world war, Rolls-Royce was called into action to build engines for fighter planes. The company built Merlin, which was used to power Hawker Hurricane and Supermarine Spitfire planes. The success of Merlin transformed the company from a relatively small business to an engineering powerhouse.
In 1944, Rolls-Royce began developing the aero gas turbine, and in 1953, the company entered the civil aviation space. Ten years later, the company consolidated its position by acquiring smaller British aero-engine manufacturers. By 1970, Rolls-Royce had a workforce of 70,000 people.
However, Rolls-Royce experienced a financial crisis in 1971 due to the new RB211 turbofan engine that was designed and developed for Lockheed Aircraft Corporation. After several government-provided cash subsidies, Rolls-Royce entered into receivership and was placed in liquidation later that year. In 1973, Rolls-Royce Motors was spun out when the company was nationalized.
However, in 1987, under the government of Margaret Thatcher, Rolls-Royce plc returned to the stock market. In 2003, the ownership of Rolls-Royce plc was passed to Rolls-Royce Group plc, which later, in 2011, passed the ownership to Rolls-Royce Holdings plc. But throughout these corporate changes, Rolls-Royce plc remained the principal trading company.
In February 2017, Rolls-Royce posted its largest-ever pre-tax loss of £4.6 billion, which included a £4.4 billion writedown on financial hedges for protecting itself against currency fluctuations and a £671 million penalty to settle bribery and corruption charges with the Serious Fraud Office (SFO), the US Department of Justice, and Brazilian authorities.
Following this huge loss, in 2018 the company announced a restructuring of its business into three simpler decentralised units — civil aerospace, defence, and power systems — to rationalise back-office functions and remove middle management functions.
Brokers that Offer Rolls-Royce Shares
You can buy Rolls-Royce shares from any stockbroker that has direct or indirect (via a partner stockbroker) access to the London Stock Exchange where shares of Roll-Royce are listed. We have compiled a list of the best brokers that offer Roll-Royce shares after considering their trading commissions, the user features of their trading platforms, and other services.
Should I Invest in Rolls-Royce Stock?
Rolls-Royce was severely affected by the coronavirus pandemic in 2020. However, as the economy opens up and people begin to travel again, the company is expected to perform better. It will take some time for the company to get back to pre-pandemic levels. However, the stock has already tripled between October 2020 and June 2021. So, it may be worthwhile to consider it for long-term investment.
Rolls-Royce Stock Investment Potential
Rolls-Royce wasn't in good financial condition before the pandemic. So, when the pandemic came, the company was brought down to its knees. However, despite this, the company has shown resilience and innovation.
Rolls-Royce is involved in an electric aircraft startup, Archer, which could go public at a potential billion-dollar valuation. Morgan Stanley forecasts a $1.5trn valuation for the electric air mobility market by 2040. Of course, the stock could be perceived as green, making it amiable to retail investors looking for exposure to green stocks. Hence, Rolls-Royce has long-term market potential.
What Kinds of Investors Should Include Rolls-Royce Stock in their Portfolios?
Rolls-Royce would appeal to long-term investors for a variety of reasons. First, the airline sector has not fully recovered from the pandemic, as many carriers are still flying below capacity. Industry watchers believe that the industry will return to pre-pandemic levels by 2022. Also, many airline companies are operating on huge debts, so it’s expected that there will be many mergers and acquisitions along the line, which will reduce the number of operating airlines in the world. These factors will affect Rolls-Royce's business for some time.
How Much Should I Invest in Rolls-Royce?
There's no minimum amount to start investing in stocks. It depends on the size of your disposable income, investing experience, age, investment time frame, and your broker’s minimum deposit requirement. However, the golden rule of investment is to never invest more than you can afford to lose and do not allocate more than 2% of your investment capital to any single stock in one trade.
How to Buy Shares in Rolls-Royce Stock?
Generally, you can buy shares of any publicly traded company via a stockbroker or directly from the company through what is known as a direct stock purchase plan (DSPP). However, Rolls-Royce does not seem to offer a DSPP for its shares. So, you can only buy Rolls-Royce shares through a stockbroker.
Buy Rolls-Royce Shares through a Broker
You can buy Rolls-Royce shares from different brokers, but the process is somewhat similar. Log into your trading account, search for Rolls-Royce using the appropriate ticker (RR.L). Click on the stock and place your trade. If you prefer to buy at market price, you can place a buy market order, but if you prefer price limit orders, you can set your limit buy level so that your order is executed at your preferred price.
Frequently Asked Questions
Since it is involved in the airline and transportation business, the company stands to benefit from the post-pandemic market recovery. Between October 2020 and June 2021, the stock has tripled.
Rolls-Royce has a profitable business model, but the last time the company reported a profit was in its 2017 FY. The company posted huge losses in 2018, 2019, and 2020 FYs.
Yes, Rolls-Royce had been paying dividends, but the last time it paid was over a year ago for the 2019 FY. The company didn’t pay dividends for the 2020 financial year.
Rolls-Royce is primarily listed on the London Stock Exchange. However, the stock is also traded on the Frankfurt Stock Exchange in Germany.
It is necessary because fundamental analysis only tells you whether the company is in good financial health. You need technical analysis to know the right time to buy the stock. Depending on your trading style, you can buy on a pullback to a support level or the breakout of a resistance level.
The first rule is to invest with only an amount you can afford to lose and not commit more than 2% of your investment capital in one trade. The second is to always place a stop-loss order to limit your losses to the amount you intended to risk.