Credit Suisse has sounded an upbeat note on Rolls-Royce Holdings (LON:RR), noting that the British engine maker showed strong underlying cash generation, WebFG News has reported. The comments came after the blue-chip group updated investors on its full-year performance yesterday, revealing that it had returned to annual profit.
Rolls-Royce’s share price rallied in the previous session, surging 11.46 percent to close at 924.00p, boosting the benchmark FTSE 100 index which added 11.09 points to close 0.16 percent higher at 7,157.84. The group’s shares are up by more than 23 percent over the past year.
Credit Suisse weighs in on group’s results
Credit Suisse weighed in on Rolls-Royce’s results yesterday, reiterating its ‘underperform’ stance on the shares and a price target of 720p. WebFG News quoted the analysts as noting that the blue-chip group was continuing to “improve the transparency about its earnings and cash”. The engine maker reported yesterday that it had returned to full-year profit, while its cash flow had more than doubled to £273 million.
On the downside, the broker found the engine maker’s dividend of 11.7p for 2017 ‘slightly disappointing’, noting that as the group was making a ‘big strategic push’ in electrification and digitalisation, it could lead to some of the cash generated being allocated to mergers and acquisitions rather than shareholder return.
Credit Suisse said that the jump in Rolls-Royce’s share price appeared logical “if one assumes that the underlying cash generation is £100-150m better than expected structurally […] and that the market is willing to pay a 6.5 percent FCF yield for the stock on 2020E”.
Other analysts on British engine maker
Liberum Capital meanwhile reiterated its ‘hold’ stance on the shares yesterday, with a price target of 875p. According to MarketBeat, the blue-chip engine maker currently has a consensus ‘hold’ rating and an average price target of 925.40p.