Insiders have been selling Rolls-Royce shares at £11. Time to worry?
Rolls-Royce (LSE:RR) shares appear to have run out of steam. They’re only about 5% higher than they were back in August.
Perhaps some investors are wondering whether to sell some shares and crystalise gains. It’s gone through my head recently, with the FTSE 100 stock up more than 100% in the past year.
Therefore, I was interested to see that two insiders have just sold shares. And it was the CEO and CFO no less! Is this anything to worry about?
Transactions
On 27 October, CEO Tufan Erginbilgiç offloaded 7,433 shares at a price of 1,133p for £84,215. The same day, CFO Helen McCabe sold 2,874 shares for £32,562.
Now, the first thing to note here is that these weren’t very big transactions (at least for FTSE 100 executives). Moreover, these are exercised share options, meaning this is a routine activity for senior executives (it happened last month too).
In other words, these aren’t large open-market dumps. As such, theyâre nothing to worry about. In fact, the last notable trading activity was in early October involving non-executive director Paulo Cesar Silva. However, he didnât dump shares. He actually bought 41,780 of them for £485,379!
Bullish
According to my data provider, he last loaded up in late 2023, when he bought 43,000 shares at 295p. With Rolls-Royce shares now at 1,160p, that’s proven to be a savvy purchase.
Why might he be buying now? Well, as Wall Street legend Peter Lynch once said: âInsiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.âÂ
Looking ahead, I see a number of reasons to be bullish. As well as its civil aviation business, which is primed for long-term growth as international travel rises, Rolls-Royce has its defence unit. In June, the order backlog there stood at £18.8bn, with plenty of growth opportunities as Europe re-arms.
Its power systems division is capitalising on the explosive growth of data centres, driven by AI. Demand for its data centre backup generators is booming, with management lifting its mid-term growth forecast for this part of the division to roughly 20% a year (from 15%â17%).
Meanwhile, the firm has been selected as the sole provider of the UKâs first small modular reactor (SMR) programme. With the Czech Republic already on board (and possibly Sweden soon), Rolls-Royce is the only company with multiple SMR commitments in Europe.
To be fair, this exciting SMR business does also present risks. The technology’s still unproven at scale, while supply chain snags could see the roll-out of these mini-reactors delayed. Crucially though, management expects Rolls-Royce SMR to be profitable and free cash flow positive by 2030.
Finally, the dividend’s back after a quite remarkable turnaround in the company’s financial performance. Granted, the starting yield’s low at just 0.9%, but its reintroduction was symbolic (it looked highly unlikely back in 2020).
Q3 trading update
I won’t be selling any of the Rolls-Royce shares that I bought in 2023. Investors might want to consider the stock today, but the forward price-to-earnings ratio of 36 isn’t cheap and adds valuation risk.
The engine maker will drop a Q3 trading update in mid-November. Shareholders can check in on company progress then.
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Ben McPoland has positions in Rolls-Royce Plc. The Motley Fool UK has recommended Rolls-Royce Plc. 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.
