Broker tips: Rolls Royce, Fresnillo, Centamin, Randgold, Royal Bank of Scotland

Analysts at Credit Suisse have marked-up their target price on shares of Rolls Royce on expectations for operating profits to almost triple over the next four years.

According to the Swiss broker, operating profits on an IFRS 15 basis were set to jump from £502m in 2018 to £1.384bn by 2021, driven by the improved performance of its Civilian aerospace arm, where earnings were seen reaching about £400m in 2020, versus £330m of red ink in 2017.

Growth in cycle businesses at the Power Systems unit would also play a hand, they said.

In parallel, cash flow was seen improving from roughly £472m in 2018 to £1.036bn by 2020, thanks to growth in the Trent installed fleet.

However, there were risks to navigate, including its Capital Markets Day in mid-June to discuss its restructuring programme and the stronger pound.

Even so, and on the expectation of a 7% free cash flow yield in 2020, the analysts moved their target price from 720p to 785p, although they kept their recommendation at 'underperform'.

"We believe that this level appropriately reflects the expected improvement in cash and a view that the cash inflows from long-term service agreements should not be reflected at full value. They are indeed representative of future revenues, in our view, not future profits. Most of them will arise from the Trent XWB fleet, for which the main service cost elements are still uncertain as there is no shop visit history yet."

Goldman Sachs' commodities analysts have turned positive on gold for the first time in five years, as the yellow metal's dislocation from US interest rates "is here to stay".

As a result, FTSE 100-listed Fresnillo was upgraded to 'buy' and added to Goldman's 'conviction list' with a 1,550p price target due to its strong growth pipeline, potential to grow dividends and attractive valuation versus history.

Egypt-focused Centamin, which is seen as having the best asset in terms of quality and cost positioning, upside risk to 2017 production and potential for strong balance sheet and dividend growth, was also a top-pick 'buy' on the conviction list.

Analysts also raised Randgold Resources to 'buy' but cut the TP to 7,500p from 8,000p, with the recent sell-off presenting attractive entry point, but DR Congo risks noted.

Goldman said the commodities team's positive position on gold might seem counter-intuitive as the bank's economists have a positive view on global growth, which might be expected to weigh on the gold price.

However, the commodities team believes that the dislocation between the gold prices and US rates is here to stay: "Their bullish view on gold is driven by: 1) Higher inflation (gold is an inflation hedge); 2) Rising EM wealth which historically has been positive for gold; and 3) Increased risk of an equity correction."

Deutsche Bank has upgraded its recommendation on Royal Bank of Scotland as the shares' underperformance "is not justified".

Deutsche, which moved up to a 'buy' rating from its previous 'hold' but trimmed its target price to 305p from 315p, noted that RBS has underperformed Barclays, Lloyds and the wider European market so far in 2018.

Part of this underperformance is seen as relating to a change from RBS management's guidance at the recent full-year results, where no explicit cost target was given for 2020 or a reduction target for 2018.

"But the underperformance doesn’t appear to reflect the change in UK rate expectations since the beginning of the year," analysts said, with the implied policy curve having risen >25bps for one-year to three-year, "and RBS’s interest rate sensitivity on most recent disclosures, now amongst the most geared in Europe".

With UK rates almost certain to rise sooner than those controlled by the European Central Bank, the share price and valuation of 8.8 times 2019 expected earnings per share "represents an attractive entry point"