Today we take a look at the defense sector. Even though the Second World War has long past, the struggle for human rights never ends. Even in Europe. In view of this, Dr. Hermann Stern of Obermatt came across an interesting defense company when he helped a client put together his portfolio. They were looking for large European stocks with good Obermatt ranks. Suddenly Dr. Stern noticed a big name: Rolls Royce!
A prestigious company, known for its luxurious vehicles, which BMW has taken over. Today, the company's core business is the manufacturing of engines for civil and military aviation. And that's not all: Rolls Royce even specializes in nuclear technology. It is also used in propulsion systems for nuclear submarines.
He has to admit that he was very surprised to find a defense company with good Obermatt value ranks, i.e. a low share price, because at the moment, governments are going through a conservative phase. The conflicts that have flared up in recent years will certainly lead to much more money being spent on defense, even in Europe. These geopolitical frictions make the defense industry a hot industry for me.
Let's take a closer look. Why does Rolls Royce have such good Obermatt ranks? With this amount of prestige, the company should be expensive.
What are the numbers behind the Obermatt ranks? The London Stock Exchange webpage is helpful in this situation. You can find a lot of basic financial data and the latest news on publicly listed companies.
Rolls Royce is a giant: 16 billion pounds of market capitalization. They also pay decent dividends: around 3%. The debt-equity ratio is low, net gearing was only 8.68% according to the latest reports. That explains the good Obermatt safety ranks.
Dr. Stern also looked at the news. Currently, all news have led to higher stock prices.
Since Rolls Royce doesn't make cars anymore, he asked himself: Who does it belong to today? For this information, however, he had to look elsewhere. Some companies list their main shareholders on their websites - but not Rolls Royce. Fortunately, he found what he was looking for on Market Screener . Market Screener shows a broad shareholder base for Rolls Royce. All major investors are also professional fund managers.
He also found the latest analyst recommendations on the same website. It was interesting to see that these recommendations barely changed. They stayed rather flat of the recent months. Why is that? Dr. Stern did some more research on the Internet. It's just a shame Google didn't give him any concrete news only a lot of generic content. In other words: Internet spam. So he looked at the Financial Times .
There he finally found out what's happening with Rolls Royce: they're having problems with one of the engines they're selling to the aviation industry. The whole thing could cost the company up to 1 billion pounds, it even has an effect on the Boeing 787 Dreamliner.
Now the cat’s out of the bag. It’s serious. So serious that Rolls Royce had to recall engines for repair. But that's not all: there is also a fraud case hovering over the company. The good part: Management is fully cooperating and working with the authorities. They are not trying to deny anything.
Basically, this is good news. It is exemplary how management is facing their challenges with complete transparency. Such behavior is welcomed by the financial world. There is also one thing we must not forget: Known problems are always priced in. So we don't have to worry about the past, we only have to worry about the future.
The future, of course, could bring more bad news. You never know. But after his research, Dr. Stern is confident that this was a singular incident. He doubts that there are any rotten apples left. That's why he's going to buy this stock. His decision has been made. We wish you success with yours.