JPMorgan cuts Rolls-Royce target price, cites soft EBITA margin guidance
JPMorgan Cazenove cut its price target on Rolls-Royce to 650p from 700p as it made additional cuts to its earnings per share estimates, citing soft guidance on the company's EBITA margins.
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Rolls-Royce Holdings
421.10p
16:40 26/04/24
JPM pointed out that its initial note following RR's FY18 results on 28 February focused mainly on the many exceptional items and accounting issues.
"But we were so bogged down in the detail we missed the most negative thing," it said in a note on Tuesday. "In the results meeting, for the first time, RR’s CFO gave 'soft' guidance on 'RR defined EBITA margins' for 2023-24: the guidance is below our expectations and well below that of some of the bulls."
JPM said that despite very large EPS cuts in its initial post-results note, it is now cutting its 2020-22 EPS forecasts by an additional 7%/10%/15%.
"Some bulls tell us they assume 2023-24 group EBITA margins of 12%17," JPM said. "If EBITA is much lower than many expect through to 2023-24, then it is likely that more of the expected free cash flow will be from working capital and customer prepayments, as we have argued multiple times before."
JPM rates RR at 'underweight'.
At 1100 GMT, the shares were down 1.8% at 878.80p.