Rolls-Royce shares might have soared since its results yesterday, but not all are impressed with the recovery plan set out by new chief executive Tufan Erginbilgic.
JP Morgan has kept with an 'underweight' rating, adding that it sees four areas of possible concern with the plans.
A worry for the US bank is the stated aim to reduce debt levels on Rolls' balance sheet organically, which JP Morgan believes is a risky strategy and leaves the aero engine group “highly vulnerable” to any unexpected shocks in the next few years.
Erginbilgic also included little comment on what JP Morgan sees as the strategic weaknesses in Rolls' wide-body engine business, where it has a low market share on the Trent 1000, and the high risks associated with the LTSA business model.
The share price rally reflected better than expected earnings and cash flow in 2022 plus upgrades for the current year, but JP Morgan described the upgrades as low quality while on its calculations debt goes up by £500mln.
Finally, JP Morgan notes the new chief executive’s two predecessors made similar noises when they took over “so the proof will be in the delivery, not the statement of intent”.
Even so, the bank has upped its share price target to 90p from 70p, though this remains far below the current market showing with the shares up another 5% today to 139p, making a gain of 30% since yesterday morning.