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Here’s what I think could affect the Rolls-Royce share price in 2022

·3-min read
Rolls-Royce's business aviation engine, the Pearl 700
Rolls-Royce's business aviation engine, the Pearl 700

Since the pandemic began, Rolls-Royce (LSE:RR) has been one of the biggest losers on the FTSE. What’s ahead in 2022 for the Rolls-Royce share price and should I add shares to my holdings?

Rolls-Royce share price showing signs of life

As I write, Rolls-Royce shares are trading for 127p. At this time last year, the shares were trading for 105p, which is a 20% increase over a 12-month period. When the market crashed in 2020, shares dropped to penny stock levels. Penny stocks are those that trade for less than £1.

Even before the market crash and pandemic, the Rolls-Royce share price had been on a downward trajectory. A renewed focus including a cost cutting strategy and hopes of the aviation market reopening could offer Rolls some hope once more. Let’s take a look at what 2022 could have in store.

Positives

Rolls decided to conduct a review of its business that included major cost cutting and job losses too. I am never fond of seeing anyone lose their jobs but sometimes needs must. The sale of non-essential smaller businesses owned under the RR umbrella was another aspect of the exercise. If conducted successfully, these steps should help Rolls-Royce shares upwards.

I can actually see some evidence of the cost cutting and streamlining working. According to Rolls’ latest trading update released last month for the period ending 30 November, it has returned to a positive cash flow position. Further positive updates ahead based on steps taken could boost the Rolls-Royce share price in my opinion.

Rolls-Royce also stated it is looking to generate £750m in cash in the year ahead. This is dependent on flying hours nearing pre-pandemic levels. There are already signs this is happening throughout different parts of the world. I personally believe there will much more activity in respect of flights and holidays and aviation activity in 2022. All of this bodes well for RR shares.

Negatives & verdict

The Covid-19 pandemic has become RR’s nemesis of sorts. The emergence of new variants as well as differing levels of impact throughout the world have affected the Rolls-Royce share price and progress badly. Unfortunately, the pandemic is not something that can be analysed or researched or even controlled in my opinion. This means there is a high level of uncertainty. Looking ahead, another variant or issues could cause Rolls-Royce shares issues in 2022 too.

One major negative that I must identify is the fact there won’t be a dividend payment until at least 2023 due to loan agreements. These same loans kept the lights on at the height of the pandemic. Even then, we may arrive in 2023 and progress could have been hampered and there is not enough money to pay a dividend.

Overall I think there is a lot of uncertainty linked to the Rolls-Royce share price. At current levels it looks cheap, however. It has a great profile and presence in its market and has diversified operations with its military contracts. I only invest for the long term and it looks like Rolls-Royce would have to be for the long haul for me to see a return. Right now, the negatives are putting me off so I will avoid shares for now but keep an eye on developments.

The post Here’s what I think could affect the Rolls-Royce share price in 2022 appeared first on The Motley Fool UK.

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Jabran Khan 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.

Motley Fool UK 2022

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