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Rolls Royce has target price upped by Deutsche Bank over bullish outlook

Published: 10:10 22 Jun 2018 BST

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The German bank lifted its target price for the engine maker to 880p from 868p

Rolls Royce Holdings PLC (LON:RR.) has had its target price hiked to 880p from 868p by analysts at Deutsche Bank following what they saw as a bullish outlook for the medium-term.

Analysts said the FTSE 100 engine manufacturer would see its free cash flow (FCF) increase from £273mln in 2017 to £1.2bn by 2020 and possibly reach over £1.9bn by 2023.

READ: Rolls-Royce shares soar as it again maintains full-year guidance despite upping costs for Trent engine issues

The bank added that it was lifting its target price to reflect “EBIT upgrades offset by the cash costs of restructuring”.

The lift in outlook follows an announcement by the company on June 15 that it would maintain its full-year guidance despite saying that problems with its Trent 1000 engine, which has grounded some planes, could cost it an extra £100mln this year.

On the day, Rolls Royce’s shares jumped 11.2% to 981.7p from 882.8p as the company added that it had “successfully enacted a number of short-term discretionary cost mitigation actions separate to, and outside of, the proposed restructuring plan, which we expect to offset these incremental costs.”

The firm also announced ambitious new mid-term financial targets, saying it is aiming for free cash flow per share to exceed 100p in the mid-term.

That compares to the current 15p per share of free cash flow it made in 2017 and the group said it will be helped by its restructuring plan, unveiled on Thursday, which it said will save £400mln a year by 2020.

READ: Rolls-Royce's price target raised by Credit Suisse and JP Morgan after last week's restructuring announcement

Deutsche isn’t the only broker to issue a lift for the manufacturer, with Credit Suisse upgrading its rating to ‘Neutral’ from ‘Underperform’, saying the trading update reflected credible changes made to the company’s structure.

In mid-morning trading Friday, Rolls Royce shares were up 1.1% at 936.6p.

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