Rolls-Royce and BCA Marketplace

Monday, June 11, 2018 - 09:47

“Investors don’t appear to be overly worried about the latest state of affairs with international trade following the G7 meeting, given that markets in Asia and Europe move ahead on Monday. In the UK, the FTSE 100 moved up 0.5% in early trading to 7,718, helped by gains in utility, tobacco and financial stocks,” says Russ Mould, investment director at AJ Bell.


“News of further engine trouble at aircraft engine manufacturer Rolls-Royce has been taken fairly well by the market so far.

“There are two ways of looking at the revelation a second class of its Trent 1000 engines will need to be retested after a first batch ran into similar issues in April.

“One is that it demonstrates the company’s commitment to engineering and support excellence. The other less palatable conclusion is that Rolls’ reputation for competence in this area is being undermined.

“This is significant as the future progress of the company is inextricably linked to its ability to get its engines on an increasing number of planes. Doing so will boost the servicing and parts cycle which accounts for a big chunk of the company’s profit and cash flow.

“The company reaffirmed its cash flow guidance despite some additional costs associated with this new round of inspections – with media reports suggesting the company plans to cut 4,000 jobs.”

BCA Marketplace

“A takeover approach for car auction expert BCA Marketplace looks like classic private equity behaviour: swoop when someone is temporarily down.

“A sharp decline in the share price earlier this year – amid widespread concerns about demand for new and second hand cars in the UK – has resulted in bid interest from Apax Partners. The share price went from 204.2p at the start of 2018 to a low of 149.6p in March.

“BCA says Apax made a proposal to buy the company for 200p in May which was subsequently rejected. The fact that the shares now trade above 238p implies the market is expecting Apax or someone else to bid a higher price.

“The business used to be owned by private equity and spent a lot of its early days as a listed business making acquisitions to strengthen its position in the UK and expand its service offering. It then started to push into Europe.

“BCA’s shares are now trading at an all-time high as a result of Apax’s interest becoming public news. This may prevent other potential suitors from wanting to show their hands unless someone is prepared to take a long term view and has identified synergies that could warrant paying a high price today in order to make good returns down the line.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.