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Berenberg slashes target price on Rolls-Royce, raises to 'buy'

By Iain Gilbert

Date: Friday 11 Sep 2020

Berenberg slashes target price on Rolls-Royce, raises to 'buy'

(Sharecast News) - Analysts at Berenberg slashed their target price on aerospace and defence manufacturer Rolls-Royce from 890.0p to 270.0p on Friday but upped their rating on the firm from 'hold' to 'buy', stating nothing was priced in for a turnaround.
Berenberg said the market appears to have given up on Rolls-Royce, with the current share price implying negative value for its civil aerospace engine business.

"This is unjustified, in our view, and fails to reflect any improvement potential in a business that is at rock-bottom," said the analysts.

The German bank said it saw a path to "materially higher" cash flows from 2022 and an "all-in" free cash flow yield of 10% in 2022 - rising to 27% in 2024, based on its below-guidance forecasts.

Berenberg also conceded that a weak interim operating result was always expected due to Covid-19 impacts but said given that write-downs, provisions and charges to close out excessive currency hedging would not repeat, it felt Rolls-Royce's first-half was the group's "low point".

"Investor confidence is low, given the poor recent track record and uncertainties in civil aerospace due to Covid-19. This offers an opportunity to capture valuation upside through the turnaround," said Berenberg.

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