Rolls-Royce Holdings Plc’ share price rises sharply, plans a $1.7-billion stock buyback

The second-biggest commercial aircraft engines manufacturer in the world – Rolls-Royce Holdings Plc made an official statement today, revealing that it intends to buy back 1 billion pounds ($1.7 billion) in stock. Following the announcement, the companys shares rose as much as 7.2%, the most since July 2012.

The share buy back represents about 5% of the company’s current market capitalization and the decision for it has been taken after Rolls-Royce reached an agreement to sell its energy assets to Siemens AG for $1.3 billion .

Mr. John Rishton, who currently occupies the position of Chief Executive Officer of the company, said in the statement that was cited by Bloomberg: “As no material acquisitions are planned, and reflecting the strength of our balance sheet, we will return the proceeds of the Energy sale to our shareholders.”

According to the statement of Rolls-Royce Holdings, the proceeds gathered from the sale of the energy assets in question are planned to be invested in the buyback that is yet to come. The company also explained that it hasn’t planned any acquisitions in the near future.

However, the company not only explained that it would return the proceeds from a recent disposal to its shareholders, but also revealed that it plans to cut the capital expenditure of the group to 4% of its underlying revenue over the next three to five years. In comparison, the level amounted to 4.9% at the end of 2013.
In May, Rolls-Royce Holdings Plc officially revealed that it has decided to sell its energy gas turbine and compressor unit to Siemens AG in a deal estimated at 1.3 billion dollars. The company explained the disposal of its energy assets saying that it intended to become more focused on its marine division and commercial aircraft engines.

One of the analysts, who work at Agency Partners – Mr. Nick Cunningham described the announcement of the company’s buyback program as a “surprise”. As reported by the Wall Street Journal, he also said: “The good news is that it is quashing the idea of any more M&A.”

Rolls-Royce Holdings Plc was adding 5.94% to trade at 1070.00 pence per share by 9:31 GMT, marking a one year change of -8.39%. According to the information published on the Financial Times, the 18 analysts offering 12 month price targets for Rolls-Royce Holding Plc have a median target of 1,200, with a high estimate of 1,440 and a low estimate of 860.00. The median estimate represents a 18.69% increase from the last price of 1,011.