Rolls-Royce share price: Panmure Gordon remains bearish on group

on Sep 20, 2016
Updated: Mar 11, 2020

Analysts at Panmure Gordon continue to see Rolls-Royce Holdings (LON:RR) as a ‘sell,’ arguing that the ongoing cost-cutting and new strategic priorities do not address the business’ fundamental weakness. The comments are a blow for the blue-chip group, which has suffered a string of profit warnings in the past couple of years amid weaker demand for engines and low oil prices.

Rolls-Royce’s share price has been little changed in today’s session, having slipped 0.05 percent to 739.16p as of 14:30 BST. The stock is underperforming the benchmark FTSE 100 index which has climbed into positive territory and is 0.66 percent better off at 6,858.85 points. The group’s shares have gained about seven percent over the past year, as compared with about a 12-percent rise in the Footsie.
Panmure Gordon reiterated its ‘sell’ rating on Rolls-Royce today, with a price target of 500p on the shares.
“The cost-cutting and strategic priorities identified by the new management do not address the fundamental weakness in its business strategy,” the broker’s analyst Sanjay Jha said, as quoted by Interactive Investor. “The seeds for recent profit warnings were sown back in 2011 with the decision to exit narrow-bodies and compete with GE in large engines without any distinctive competitive advantage and a weaker balance sheet.”
The comments came after the British engine maker signalled over the weekend that it was cutting 200 more management jobs as part of its ongoing restructuring under chief executive Warren East.
Panmure Gordon’s Jha believes that Rolls-Royce has missed a trick, with yields under pressure on most medium-haul routes served by A330-300s, where the FTSE 100 group has a 50-percent market share, which could easily be replaced with more efficient narrow-body aircrafts.
“A bigger threat to wide-bodies will come when Norwegian and JetBlue take delivery of A321LRs from 2019,” the analyst commented as quoted by Interactive Investor. “This may not only bring forward retirement of older B777s and A330s but may also hurt future sales of A330neo, one of just three large engine platforms now powered by RR.”
As of 15:05 BST, Tuesday, 20 September, Rolls-Royce Holding PLC share price is 767.75p.