JPM cuts Rolls-Royce price target, sees £6bn of new equity

JP Morgan cut its price target for Rolls-Royce shares for the second time in a month and warned the troubled engine maker needs at least £6bn of new equity.

The investment bank's analyst David Perry reduced his price target to 65p from 80p and kept his 'underweight' rating on Rolls-Royce's shares.

Rolls-Royce will warn soon that 2021 free cash flow will be less than the consensus estimate for a £864m outflow, Perry predicted. Rolls-Royce has confirmed reports that it is considering raising £2.5bn of capital from a rights issue and other sources. These are said to include sovereign wealth funds.

"We believe RR needs new equity of at least £6bn, so we would expect more than one equity raise in the next 12-15 months," Perry wrote in a note to clients. He predicted total cash outflows of about £6.3bn in 2020 and 2021 and net debt in 2021 of about £20bn compared with a market capitalisation of £3bn.

Perry had already cut his price target to 80p from 90p on 28 August, citing cash flow pressure and doubts about the company's status as a going concern.