Rolls-Royce Holdings (LSE:RR., Financial), the U.K.-based producer of engines for the aerospace, defense and power markets, detracted the most from performance for both the fiscal year and most recent quarter. We wrote extensively about Rolls-Royce in our last quarterly letter and continue to believe that Covid-19 will cause a material and long-lasting disruption to its civil business. However, we also believe the company's other businesses, namely power systems and defense, offer significant value and have been much less disrupted by Covid-19. The company's share price weakness implies that all of its businesses have declined as much in value as the civil business, which we believe is not the case. We would note that after the close of the quarter, Rolls-Royce announced a GBP 2 billion rights issue as part of a GBP 5 billion recapitalization package that will strengthen its balance sheet and ensure adequate liquidity even if flight hours increase only moderately in 2021.
From David Herro (Trades, Portfolio)'s Oakmark International Fund third-quarter 2020 commentary.
