Rolls-Royce share price: Analysts point to poor visibility

on Aug 9, 2016
Updated: Mar 11, 2020

Berenberg Bank continues to see Rolls-Royce Holdings (LON:RR) as a ‘hold’, arguing that the medium to long-term outlook for the engine maker seems uncertain. The comments come with the FTSE 100 group undergoing a major restructuring under its new chief executive Warren East, following a string of profit warnings.

Rolls-Royce share price closed 0.33 percent lower in London yesterday, underperforming the broader market, with the blue-chip FTSE 100 index ending the session 0.23 percent higher at 6,809.13 points. The group’s shares have lost just under six percent of their value over the past year, but have recovered some 31 percent in the year-to-date.
Berenberg reiterated its ‘hold’ rating on Rolls-Royce yesterday, with a price target of 710p on the shares, noting that confidence in the company was waning following multiple profit warnings, and that the medium to long-term outlook for the aircraft engine manufacturer looked uncertain.

“Investor confidence remains low following the last two profit warnings that signal a materially lower medium-term margin trajectory in civil aerospace,” the broker’s analyst Andrew Gollan said, as quoted by Citywire. “It is still not clear, but this could reflect a move to more conservative accounting, structurally lower profitability on contracts or higher short-term dilution from the shift to unlinked contracts.”
The analyst added that while Rolls-Royce chief executive had implemented a restructuring plan, visibility was “still poor but, more importantly it is difficult to assess the long-term value embedded in the growing and maturing fleet of engines”.
The comments follow Rolls-Royce’s half-year results last month when the blue-chip engine maker posted a smaller-than-expected drop in profits.
Kepler Capital Markets meanwhile remains bearish on Rolls-Royce, having reiterated its ‘reduce’ rating on the stock last week, with a price target of 570p on the shares. Deutsche Bank, which sees the engine maker as a ‘sell,’ hiked its valuation on the stock from 471p to 474p.
As of 07:58 BST, Tuesday, 09 August, Rolls-Royce Holding PLC share price is 756.50p.