SILVER BULLETS - Espirito Santo Investment Bank incorporating ...

THIRD QUARTER 2010
Rolls Royce
Valuation Metrics 2008 2009 2010E 2011E 2012E
Recommendation: Sell Execution P/E 15.3 15.0 14.3 13.6 12.6
Fair Value: 530 Reported P/E 15.3 14.2 14.2 13.6 12.6
EV / Sales 1.1 1.0 1.0 1.0 0.9
Share Price: 561p EV / EBITDA 8.8 8.5 8.2 7.8 7.5
Upside / Downside -5.5% EV / EBIT 12.11 11.50 11.00 10.34 9.70
FCF Yield 14.9% 2.4% 5.1% 5.1% 6.6%
Previous Fair Value 550p Dividend yield 2.5% 2.7% 2.9% 2.9% 2.9%
% change to fair value -3.6%
Bloomberg: RR/ LN Key ratios 2008 2009 2010E 2011E 2012E
T-One: RR.-LN
Model Published On: 02 July 2010 EBITDA margin 12.7% 11.9% 12.1% 12.5% 12.6%
Adj. EBITA margin 9.2% 8.8% 9.1% 9.5% 9.7%
Capex / Revenue -6.8% 6.7% 4.9% 4.8% 3.5%
Shares In Issue (Less Treasury) 1,845 Capex / Depreciation -1.97 2.17 1.59 1.59 1.19
Market Cap 10,350 Net Debt / EBITDA -0.1 -0.1 -0.2 -0.4 -0.6
Net Debt (incl Pension liability) -117 EBITDA / Net Interest 29.7 17.7 19.5 29.7 57.1
ROE 33% 19% 17% 16% 15%
Enterprise Value 10,233
P&L Summary 2008 2009 2010E 2011E 2012E
Forthcoming Catalysts Revenue 9,147 10,108 10,250 10,410 10,850
% change 17.0% 10.5% 1.4% 1.6% 4.2%
Full year Results 2009 11 February 2010 EBITDA 1,160 1,205 1,245 1,305 1,370
AGM 28 April 2010 % change 16.1% 3.9% 3.3% 4.8% 5.0%
Farnborough Air Show 19 July 2010 % margin 12.7% 11.9% 12.1% 12.5% 12.6%
1H 2010 Interim Results 29 July 2010 Depreciation & Amortisation -315 -315 -315 -315 -315
EBIT 845 890 930 990 1,055
% change 10.3% 5.3% 4.5% 6.5% 6.6%
Execution Analyst % margin 9.2% 8.8% 9.1% 9.5% 9.7%
Edward Stacey Associates 74 93 95 95 95
(44) 20 7456 9135 Operating Profit 919 983 1,025 1,085 1,150
edward.stacey@executionlimited.com Net Financials -39 -68 -64 -44 -24
Minority Interests 5 0 0 0 0
Pre Tax Profit 885 915 961 1,041 1,126
Revenue Breakdown Income Tax Expense -217 -187 -231 -281 -304
Net Income 668 728 730 760 822
Execution Net Income 730 760 822 0 0
Reported EPS 36.70 39.46 39.59 41.19 44.55
Execution EPS 36.70 37.29 39.16 41.31 44.68
DPS 14.30 15.00 16.00 16.00 16.00
Payout Ratio 39.0% 38.0% 40.4% 38.8% 35.9%
Shares In Issue (Weighted, Less Treasury) 1,820 1,845 1,845 1,845 1,845
Defence
Aerospace
18%
Cash Flow Summary 2008 2009 2010E 2011E 2012E
Pre Tax Profit 885 915 961 1,041 1,126
EBITA Breakdown Depreciation & Amortisation 315 315 315 315 315
Margin Trends
Margin
14%
12%
10%
8%
6%
4%
2%
0%
Marine
24%
Defence Aerospace
23%
Marine
19%
Energy
8%
Energy
0%
Civil Aerospace
50%
Civil Aerospace
58%
2007 2008 2009 2010E 2011E
Adj. EBITDA margin Adj. EBIT EBIT margin margin
Taxes Paid -217 -119 -231 -281 -304
Change in Working Capital -38 -381 4 -5 -13
Other Operating Cash Flow -79 129 -95 -95 -95
Operating cash flow 866 859 954 975 1,029
Capital Expenditure 620 -682 -500 -500 -375
Free Cash Flow 1,486 177 454 475 654
Dividends Paid To Shareholders -237 -250 -277 -295 -295
Equity Raised / Bought Back -231 0 0 0 0
Other Financing Cash Flow
Net Cash Flow 1,018 -73 177 180 359
Balance Sheet Summary 2008 2009 2010E 2011E 2012E
Cash & Equivalents 2,469 2,960 3,037 2,717 3,076
Tangible Fixed Assets 3,597 2,881 3,066 3,251 3,311
Goodwill & Intangibles 2,286 2,472 2,472 2,472 2,472
Associates & Financial Investments 419 695 790 885 980
Other Assets 6,575 6,483 6,464 6,565 6,842
Total Assets 15,346 15,491 15,829 15,890 16,681
Interest Bearing Debt 2,368 2,843 2,743 2,243 2,243
Other Liabilities 10,920 8,784 8,768 8,864 9,129
Total Liabilities 13,288 11,627 11,511 11,107 11,372
Shareholders' Equity 2,049 3,864 4,318 4,782 5,309
Minority Interests 9 0 0 0 0
Total Equity 2,058 3,864 4,318 4,782 5,309
Net Debt (including pension liability) -101 -117 -294 -474 -833
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