I’d buy Rolls-Royce shares despite the big 2020 loss

first_img Our 6 ‘Best Buys Now’ Shares Nadia Yaqub | Wednesday, 17th March, 2021 | More on: RR I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.And right now, we’re giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool. Image source: Getty Images. I’d buy Rolls-Royce shares despite the big 2020 loss Enter Your Email Address Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! See all posts by Nadia Yaqubcenter_img Nadia Yaqub has no position in any of the shares mentioned. 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Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. I’ve been bullish on Rolls-Royce (LSE: RR) shares for sometime. Last week the FTSE 100 stock released its 2020 full-year results and I can’t say I was too surprised with what the company reported.I think most of the bad news is out in the open for Rolls-Royce shares. And from here, the company and share price are likely to recover so I’d buy the stock. But here’s what I drew from its recent results.5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…Big hit2020 wasn’t a great year for Rolls-Royce. Revenue and profitability took a big hit. In fact, total sales were down 24% to £11.8bn. The company also suffered a £4bn loss over the year, which included a £1.7bn finance charge.To be honest, I’m not shocked by the big negative numbers. Investors knew Rolls-Royce’s situation was struggling last year and understandably so given the pandemic. It’s no surprise to me that the Civil Aerospace division suffered the worst impact. Rolls-Royce’s largest business took a nose-dive because of Covid-19 travel restrictions. Its revenue just dried up, which was reflected in the results.But I’ll stop with the negative news now and turn to the reasons why I’d buy Rolls-Royce shares.LiquidityLast year, Rolls-Royce took big steps to improve its liquidity position. It raised money through a rights issue and put further credit facilities in place.So at the end of its 2020 financial year, Rolls-Royce had access to a grand total of £9bn in liquidity, including £3.5bn in cash and £5.5bn in undrawn credit. It expects a cash outflow of £2bn in 2021. This is weighted towards the first half of the year before Rolls-Royce expects cash flow to turn positive at some point in the second half of this year.What I take from this is that the company has enough money to weather the storm in the short term. By my calculations, there’s a wiggle room of £7bn in liquidity provided that things continue as expected.Power Systems & Defence divisionsThe Power Systems and Defence divisions held up well last year. Both businesses accounted for 23% and 29% of Rolls-Royce 2020 full-year revenue respectively.I’ve mentioned this before, but the Defence business provides Rolls-Royce with some revenue stability and visibility. So I’m not surprised, given that revenues took a hit in 2020, that the Defence division accounted for a larger portion of sales. In 2019, this same division only accounted for 20% of revenue.What I think is pleasing to see is that the Defence business has 90% order cover for 2021. The company also predicts steady growth from this division into the medium term.My viewRolls-Royce is highly dependent on the lifting of travel restrictions and the vaccine rollout. Any delays or setbacks mean a further impact to revenue and profitability. This could also place pressure on liquidity and it may need to raise more money, which would be negative for the shares.I recognise that the recovery from the pandemic will take time and I don’t think the dividend will resume any time soon. But I’m still optimistic about the prospects for Rolls-Royce shares. I think the worst is over for the company and hence I’d buy now. Simply click below to discover how you can take advantage of this. “This Stock Could Be Like Buying Amazon in 1997”last_img read more