Rolls-Royce Holdings PLC (LON:RR.) shares dipped in late-morning on Tuesday after analysts at JP Morgan cut their target price for the firm to 650p from 700p citing “soft” margin guidance from the jet engine makers chief financial officer (CFO) Stephen Daintith.
In a note, the US investment bank said in a results meeting following its full-year results on 28 February the CFO had, for the first time, guided for softer company-defined earnings (EBITA) margins of around 10% for 2023-2024, lower than they had expected and much lower than bullish estimates of between 12%-17%.
READ: Rolls-Royce shares rise as Morgan Stanley upgrades to 'overweight'
JP Morgan added that if the figure was true, it was “likely” that more of the expected free cash flow would be from working capital and customer prepayments, which they had previously argued.
The prediction of softer margins follows a flurry of negative headlines for the FTSE 100 firm after it pulled out of bidding for two new engine contracts in one week at the start of March.
This has compounded issues from back in 2018 as the group was hit by around £790mln in repair costs from a fault in some of its Trent 1000 engines, which are used in Boeing Co’s (NYSE:BA) 787 Dreamliner’s, as well as a £186mln hit from Airbus’s decision to stop making its A380 superjumbo aircraft.
However, JP Morgan’s assessment placed it in contrast with fellow US investment bank Morgan Stanley, which just last week upped its rating on Rolls to ‘overweight’ from ‘equal weight’ and lifted its price target to 1,100p from 820p, saying it expected the company to increase its share of the market for installing engines in widebody aircraft to 50% by early 2020.
Shares were down 1.7% at 880p.