Photographer: Chris Ratcliffe/Bloomberg

Rolls-Royce May Jump 85% by 2020, Hedge Fund Tybourne Says

  • Tybourne Capital’s Krishnan sees bigger free cash flow coming
  • Firm is in early stages of ramping up delivery: Krishnan

Rolls-Royce Holdings Plc’s stock may rise 85 percent by 2020 as the company boosts its share of a growing market for aircraft engines, Eashwar Krishnan, managing partner of hedge fund Tybourne Capital Management said in Hong Kong.

The company is at an “inflection point" Krishnan told the Sohn Conference on Wednesday.

A low cash flow leads investors to undervalue Rolls-Royce, which is in the early stages of ramping up delivery after heavy spending to develop engines, said the former Asia head of Lone Pine Capital. The British company will have 1.5 billion pounds ($1.9 billion) of free cash flow by 2020 versus a market consensus of as much as 800 million pounds, he estimated.

Krishnan referred to Rolls-Royce getting a 52 percent share of new orders for widebody engines, versus a 27 percent share of those already installed on planes, and said the company could double its market share over five-to-seven years as airlines upgraded to become more efficient.

He’s also betting that increased air travel and an improved management team will boost the London-headquartered company, whose shares had climbed by about 34 percent this year, closing at 894 pence on Tuesday.

Rolls-Royce’s civil aerospace business may boost its profit margin to 13 percent by 2020, from 5.3 percent last year, he said.

Krishnan’s firm oversees $5.2 billion in hedge and long-only funds.

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