Will £3bn in cash finally halt the Rolls-Royce share price slide?

first_imgWill £3bn in cash finally halt the Rolls-Royce share price slide? Alan Oscroft | Thursday, 1st October, 2020 | More on: RR Click here to claim your free copy of this special investing report now! Rolls-Royce Group (LSE: RR) has been one of the worst hit FTSE 100 companies in the 2020 stock market crash. Rolls makes much of its profit from maintenance, repairs, and parts contracts for its engines. And with the Civil Aviation business almost destroyed by the Covid-19 pandemic, much of that has dried up. The Rolls-Royce share price is now down over 80% since the start of the year, which is scary.Refinancing was clearly on the cards. And, on Thursday, Rolls revealed a plan to raise at least £3bn. And it might rise as high as £5bn. The initial market reaction was less than enthusiastic. The Rolls-Royce share price lost 5% in early trading. 5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…Part of the new funding will come as a fully underwritten 10 for 3 rights issue. That should raise approximately £2bn. In addition, there’ll be a bond offering to raise at least £1bn. Rolls is also negotiating a new two year term loan facility of £1bn. And it has support in principle from UK Export Finance “an extension of its 80% guarantee to support a potential increase of the company’s existing £2bn five year term loan of up to £1bn.“Rolls-Royce share price discountRolls is pricing the new shares at 32p, a 41.4% discount “to the theoretical ex-rights price per existing ordinary share” based on 30 September. That Rolls-Royce needed to offer such a big discount to offload the new shares doesn’t exactly fill me with optimism. It suggests to me investors are still fearing significant downside potential.Chief executive Warren East said: “We are undertaking decisive and transformative action to fundamentally restructure our operations, materially reduce our cost base and improve our financial position.“The big question is, would you buy now at the current Rolls-Royce share price? I wouldn’t, and I’ll tell you why.For the first half of the year, Rolls-Royce reported a pre-tax loss of £5.4bn. At the time, the company’s balance sheet was suffering too. From a net cash position of £1.4bn, we saw a slump to net debt of £1.7bn. A free cash outflow of £2.8bn lay behind that, and Rolls expected that figure to rise to around £4bn for the full year.More capital needed?Against that position, all this new cash perhaps doesn’t look like such a huge amount after all. Though some analysts are more optimistic, Rolls-Royce itself has said it doesn’t expect to see positive cash generation before 2022. That’s a significant time to wait, and I don’t know if the current plans will be enough to get that far.Though the Rolls-Royce share price has been pummelled, behind it I still see a fundamentally good company. At interim time, I said I’d want to see glimmers at the end of the tunnel. And, especially, what shape any refinancing was going to take.Now I’ve seen it, I still don’t want to buy. I think Rolls-Royce could need to raise even more cash in the next year or two. And, if I bought now, I’d have no way to guess what dilution I’d suffer before things turn upwards.There might come a time when the Rolls-Royce share price looks like a recovery buy. But it’s not now. Not for me. 5 Stocks For Trying To Build Wealth After 50 Markets around the world are reeling from the coronavirus pandemic…And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away. Enter Your Email Address Image source: British Airways center_img Our 6 ‘Best Buys Now’ Shares Alan Oscroft 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. Simply click below to discover how you can take advantage of this. Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. See all posts by Alan Oscroftlast_img

Leave a Reply

Your email address will not be published. Required fields are marked *