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CAPITAL GOODS: Rolls-Royce (ROLLS Baa3[P]/BBB-[P]/BBB-[P]): Moody’s Upgrade

CAPITAL GOODS

Moody’s is the last of the 3 main agencies to upgrade to IG, as we expected post results https://marketnews.com/capital-goods-rolls-royce-rolls-ba1-p-bbb-p-bbb-p-tighter-post-results.

Spreads now sit in line with low triple Industrial averages (chart). Further upgrades appear likely in the next 12-18 months.

  • Moody’s upgraded Rolls-Royce to Baa3 outlook positive late yesterday.
  • They see £2.4-2.5bn 2025 adj. operating profit, slightly ahead of consensus.
  • They expect stable FCF for 2025, with analysts expecting a 12% drop.
  • Future upgrades are possible if performance meets or exceeds guidance, FCF remains strong, and liquidity is maintained at £5-7bn. Leverage will need to be sustainably below 2.5x; currently at 1.9x and seen at 2x at FY25.

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