Berenberg lowers target price on Rolls-Royce

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.