LONDON (ShareCast) - (Sharecast News) - Analysts at Berenberg downgraded aerospace and defence giant Rolls-Royce from 'buy' to 'hold' on Wednesday, citing "relative uncertainty".
Berenberg said it continues to view Rolls-Royce as "well positioned" to benefit from the eventual recovery in international air traffic, with growth in profits and cash over the medium-term supported by a right-sized cost base and ongoing efficiency initiatives.

However, Berenberg believes the visibility and cadence of the recovery remain less certain relative to more narrowbody-focussed stocks within its coverage.

The German bank also thinks near-term management transition risks exist, with a successor to outgoing chief executive Warren East yet to be confirmed.

"We cut our earnings estimates by 55-95% and our FCF estimates by 20-60% over the next three years. This reflects a large element of catch-up, primarily driven by lower revenue and margin assumptions in civil aerospace, as well as higher interest payments," said the analysts, who also slashed their target price on the stock from 160.0p to 100.0p.

"The shares are down by 30% YTD, underperforming the pan-European civil aerospace sector average, which is down by 20%. The shares trade on a 2024 P/E of 14x, a modest premium to the sector. They look more attractive on a FCF basis, yielding 11% in 2024 versus the sector on 7%."



Reporting by Iain Gilbert at Sharecast.com

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