Defense and Aeronautics (DLS01)

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Deutsche Bank and JP Morgan lower their target prices for Rolls Royce

By Alexander Bueso

Date: Monday 16 May 2022

LONDON (ShareCast) - (Sharecast News) - Analysts at Deutsche Bank and JP Morgan lowered their target prices for Rolls Royce following medium-term guidance from the aerospace engineer.
The former hailed the "enhanced visibility" afforded by the fresh medium-term guidance for its civil aerospace arm provided at its Capital Markets Day on 13 May.

In particular, they highlighted forecasts for operating margins in the high single digits and measures being adopted to boost cost efficiency and productivity.

Yet, given that the investment bank's estimates were "too high" going into the CMD they cut their 2023-25 estimates for Rolls's earnings before interest and taxes by 18% on average, lowering their target price by 14% from 110.0p to 95.0p.

On the flip-side, they did keep their recommendation for thes shares at 'hold'.

JP Morgan analysts meanwhile stood by their 'underweight' recommendation on the shares, pointing out that the improvement in its free cash flow guidance was again -as at the 2018 CMD - all down to customer advances.

In a research note sent to clients, they added that inflation might prove a challenge for long-term service agreements in its civil aerospace arm, noting peer commentary in that regard, despite confidence to the contrary from the company's management.

They also expressed concern around the company's strategy in its New Markets division.

JP Morgan lowered its target price from 75.0p to 70.0p.

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