Top UK Stocks: Rolls Royce shares pop on B-52 engine contract

Rolls Royce to power B-52s for the next 30 years, IWG shares rise on reports of a break-up, Morrisons favours CD&R takeover but auction process could still go ahead, Hikma buys Custopharm, and Prudential prices its Hong Kong share offering.

UK

Top News: Rolls Royce engines to power B-52s for US Air Force

Rolls Royce has been chosen to provide the powerplant for the B-52 Stratofortress after winning a deal that will see it power the US aircraft with its F-130 engine for the next 30 years.

Rolls Royce shares were up 5.3% in early trade this morning.

Rolls Royce North America has been selected by the US Air Force under the Commercial Engine Replacement Programme (CERP) following a lengthy process. The company said the F-130 ‘is the perfect fit for the B-52’ and said a variant is already in action with the Air Force, powering C-37 and E-11 BACN aircraft.

Reuters reported that the contract could be worth up to $2.6 billion.

‘The F130 offers outstanding reliability with high mission readiness and low maintenance demands. Once installed, the F130 can stay on wing for the entire planned B-52 lifetime. In addition, the F130 engine will provide vastly greater fuel efficiency, increased range, and reduced tanker aircraft requirements. As importantly, the engine is ready for integration using Rolls-Royce state-of-the-art Digital Engineering tools,’ said Rolls Royce.

The engines will be built and tested at the Rolls Royce site in Indianapolis in Indiana, where it has recently completed a $600 million investment to revitalise its advanced manufacturing campus. It said the latest contract win creates demand for 650 engines to be produced at the site and for an additional 150 jobs.

‘This is a major win for Rolls-Royce. We've been planning and preparing for this outcome and are ready to hit the ground running to prove that we are the best choice for the Air Force and the B-52. Our employees stand prepared to deliver once again for the men and women who protect our freedoms every day,’ said Craig McVay, SVP strategic campaigns of Rolls Royce Defence.

Where next for the Rolls Royce share price?

Rolls Royce share price has traded relatively range bound across the year, capped on the downside by 85p and on the upside by 120p. 

Last week the share price broke out of the upper band and the year to date high of 128p. Today the price has extended higher breaking above 135p the December high.  

RSI trades well into overbought territory so there could be some consolidation or even a slight ease lower.  

Bulls are targeting 145p the post pandemic high. 

Support can be seen at 135p the December high, 130p the year to date high and 120p the upper band of the holding pattern. 

Where next for the Rolls Royce share price?

Is IWG considering a break-up?

IWG is considering breaking up the business into several different companies, according to reports from Sky News.

The company, which runs serviced offices and owns brands including Regus and Spaces, is reported to be in the early stages of exploring a series of corporate actions that are designed to crystallise value for shareholders.

The ideas being considered include a US listing for Worka, its flexible working app that allows users to compare and book space in over 3,000 worldwide locations, either through a listing or by merging with a blank-cheque company, also known as a SPAC.

It is thought it could also separate its owned-property arm from its franchising operations.

Sky News, citing insiders, said IWG’s chief executive Mark Dixon has been prompted into action because he believes the company is worth around double the £2.9 billion market cap it currently boasts.

IWG shares were trading 6.6% higher this morning at 306.1p.

Morrisons favours CD&R takeover but auction could still go ahead

Morrisons revealed this morning that it is recommending investors accept the takeover offer from Clayton, Dublier & Rice and has withdrawn the competing offer from a consortium led by Fortress.  

The supermarket chain said it believes the takeover by CD&R is in the best interests of shareholders, in addition to staff, suppliers and its pension pots.

‘Accordingly, the Morrisons directors recommend unanimously that Morrisons shareholders vote in favour of the scheme at the court meeting and the resolution at the general meeting,’ said Morrisons this morning.

The meeting will be held on October 19.

‘In light of the recommendation of the CD&R offer from Bidco, the Morrisons directors have decided unanimously to withdraw their recommendation of the Fortress increased offer,’ it added.

CD&R’s bid is worth 285p per share in cash, which compares to the offer from Fortress worth 272p per share, comprised of 270p in cash and a 2p dividend.

Morrison shares were largely unmoved this morning at 292.3p.

Morrisons said earlier this month that it was working with regulators to bring an end to the bidding war as neither bidder was willing to walk away. That prompted Morrisons to go for an auction process whereby both interested parties would need to bid for Morrisons until a winner emerges.

This morning, Morrisons said the auction process could still go ahead of the competitive situation continues by the time it holds its meeting for shareholders to vote.

‘It is expected that, should this competitive situation continue as the date of the court meeting and the general meeting approaches, the Panel will require an auction procedure to be undertaken to provide an orderly framework for the resolution of this competitive situation. Any auction procedure is likely to involve one or more rounds of private bidding in which each bidder is afforded the opportunity to increase its offer price, should it wish to do so,’ Morrisons said.

The Takeover Panel, which regulates M&A in the UK, will make an announcement in due course.

‘Following the conclusion of any auction procedure, the results of the auction procedure will be announced by the Panel and, ahead of the date of the court meeting and the general meeting and the corresponding proxy voting deadlines, the Morrisons board will write to Morrisons shareholders, Morrisons CSN Participants and participants in the Morrisons share plans and persons with information rights to update them on the results of the auction procedure and to confirm its recommendation as to the action that they should take,’ Morrisons said.

Hikma Pharmaceuticals buys Custopharm for $375 million

Hikma Pharmaceuticals has agreed to buy Custopharm for $375 million on a debt-and-cash-free basis from Water Street Healthcare Partners.

Custopharm is a US-based firm that makes generic sterile injectables. It markets its products in the US through its commercial arm named Leucadia Pharmaceuticals. The purchase will immediately add 13 new approved products to Hikma’s portfolio, including four first-to-market medicines and one competitive generic therapy.

Hikma is also expecting Custopharm to boost its R&D, having already proven its ability to develop and commercialise complex sterile injectable products.

Custopharm is expected to generate over $80 million worth of revenue in 2021 and the acquisition should be accretive to Hikma’s operating margin for injectables.

Hikma will pay an additional $50 million to Water Street Healthcare once certain performance milestones have been hit.

‘This acquisition provides Hikma with an attractive opportunity to further strengthen our US injectables business, by adding an attractive and profitable portfolio of marketed products and an exciting pipeline of future opportunities,’ said CEO Siggi Olafsson.

Hikma shares were trading broadly flat this morning at 2392.5p.

Prudential prices Hong Kong share offering

Insurer Prudential is aiming to raise around $2.4 billion through its recently-announced share offering in Hong Kong.

The company announced it was set to raise cash earlier this month after completing the demerger of its US business earlier this month. It is selling 130.8 million shares – equal to 5% of its issued share capital – in an offering open exclusively to investors in Hong Kong.

This morning, Prudential said it has priced the offer at HKD143.8 per share. That will raise HKD18.5 billion, equal to $2.4 billion or £1.76 billion. The majority of the proceeds are being used to repay its high-interest debt with the rest to bolster the balance sheet.

The new shares are expected to start trading in Hong Kong when trade opens next Monday. Prudential currently has a primary listing in both London and Hong Kong, with secondary listings in Singapore and New York.

‘Prudential is a growth business exclusively focused on the unmet health, financial protection and savings needs of people in Asia and Africa.Our strategy is aligned with the supportive structural trends which drive demand for the savings and protection products which we provide,’ said CEO Mike Wells.

‘We have a consistent track record of growth. Our share offer allows investors to join us on our journey as we execute our strategy which we believe will result in long-term delivery of future shareholder returns through value appreciation, with a focus on achieving long-term double-digit growth in embedded value per share,’ he added.

Prudential shares were up 2.4% this morning at 1421.3p.

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