Rolls-Royce PLC continues to divide opinion among City analysts with Berenberg today downgrading the aero-engine maker on the back of uncertainty over the timing of a civil airline recovery.
The broker says the Rolls is well-positioned to benefit when airlines do fully get back on their feet, but the visibility on this is uncertain, especially in the narrow-body market.
As a result, Berenberg has cut its earnings estimates by 55-95% and free cash flow (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.”
The broker also believes there is a near-term management transition risk with a successor to CEO Warren East not yet confirmed.
“Together with significant cuts to our estimates we view the risk-reward ratio as evenly balanced."
'Hold' from 'buy' is its new rating, while the target price reduces to 100p from 160p.
Berenberg’s note comes just a couple of days after Morgan Stanley (NYSE:MS) described Rolls-Royce as woefully mis-priced. (read more).
Shares today rose 3.6% to 91.1p.