View from City Road: Rolls-Royce in no hurry for a partner
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Your support makes all the difference.It's an ill wind. BMW's leap upon Rover seems to rule out the German car maker as a likely partner for Rolls-Royce Motors. This ought to be bad news for Vickers' luxury car maker, which fought its way back to break-even in the second half of last year, having cut the workforce by more than half.
Rolls-Royce needs a partner because of the heavy costs of developing a replacement for its Bentley model that could exceed pounds 200m. Even if Rolls-Royce profits are generated from now on in a gently rising market they would not be enough to meet such a high development bill.
But the recession in car markets, for all its dire effects on manufacturers and component suppliers, at least has the merit of postponing the need for a new model since demand for one is scarcely robust.
In this sense, Rolls-Royce is in no rush to spend heavily or find a partner for at least the next couple of years - or sell the business, either.
Developments at Roll-Royce are the key focus of investment interest now that the future of Vickers' defence division has been secured by the Government's intention to purchase up to 259 Challenger tanks.
Roll-Royce profits will respond well to increased demand on a reduced cost base and the market is clearly betting on reasonably rapid growth in dividends from their current level of 3p a share.
At 183p the yield is just 2 per cent, which leaves little scope for error.
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