ROLLS APPROACHES FLOAT WITH PROFITS SET TO RISE
State-owned engine maker <Rolls Royce
Plc> launches its prospectus for privatisation tomorrow with
many analysts forecasting higher profits this year. But it is
likely to miss contracts to power the proposed <Airbus
Industrie> A340 aircraft.
    The company's so-called "pathfinder prospectus" gives all the
details of its stock market flotation except for the price at
which shares will be offered.
    Last month, the company announced that pretax profits rose
in 1986 to 120 mln stg from 81 mln the year before.
    Brokers Barclays de Zoete Wedd, BZW, sees 155 mln profit
for 1987.
    Analyst Tim Harris of Phillips and Drew said rising profits
and a low tax charge would be offset by the fact that Rolls
operated in a sector which traditionally attracted low ratings.
    Assuming the company was valued at around eight times
earnings, this would give a selling price valuing it at about
1.2 billion, though he said the recent good performance of the
aerospace sector could nudge this figure upwards.
    BZW is currently forecasting a higher sale price at between
1.5 billion and 1.7 billion.
    The price will be increased by it being likely to have much
of its debt wiped off by a government anxious to assure the
company's health when it has to fend for itself. Rolls was
rescued from bankruptcy and taken into state ownership in 1971.
    When the government announced the sale, it said it would
inject permanent capital equivalent to net debt -- around 250
mln stg at end-1986 -- into the company.
    Analysts noted this was necessary to ensure Rolls a credit
rating to match those of its main competitors such as General
Electric Co <GE.N> and United Technologies Corp's <UTX.N> Pratt
and Whitney unit.
 Reuter
