Broker tips: Rolls-Royce, Spirent Communications

Analysts at Berenberg slightly lowered their target price on aerospace and defence giant Rolls-Royce from 270.0p to 250.0p on Friday ahead go the group's £5.0bn "reset".

Berenberg said while painful for shareholders, it believes the group's proposed £2.0bn rights issue, part of a £5.0bn recapitalisation plan, set up Rolls-Royce to "sufficiently" navigate "an uncertain recovery" and also removed any lingering concerns about liquidity - and even solvency.

The German bank said its new numbers reflected "heightened market risk" and also included "lowball assumptions" for engine flying hours - the firm's key input for cash generation.

"On this basis, and assuming planned disposals complete, we believe valuation metrics still look attractive and screen well against aerospace peers, even after the meteoric bounce (+90%) this week off the (oversold) lows: 2023/24 EV/EBIT of 10.8x/8.0x and FCF of 8.4%/15.0%," said Berenberg, which also retained its 'buy' rating on the stock.

Analysts at Canaccord Genuity took a fresh look at testing and measurement equipment provider Spirent Communications on Friday following the company's capital markets day.

Canaccord said Spirent management had reiterated its medium-term targets of around 5% sales growth, maintaining strong gross margins and a "progressive" operating margin, reassuringly in line with consensus expectations.

However, the Canadian bank did point out that there was no comment on current trading, and said it continued to look for signs of upside to revenue/growth expectations after "a very solid, yet lumpy" first half.

Canaccord, which maintained both its 'hold' rating and 260.0p target price on the stock, said Spirent shares remained "an attractive play" on multiple technology themes - such as the rollout of 5G and data growth - and added that, encouragingly, it also saw scope for a 6% upside to consensus earnings per share in the current trading year.