Rolls-Royce profit warning unlikely to be the last, says Investec

Rolls-Royce’s latest profit warning is unlikely to be the last, Investec said on Wednesday as it slashed its price target on the stock to 420p from 520p.

“We continue to see further downside risk to consensus forecasts in the short and medium term from a series of strategic, end-market and accounting headwinds,” the brokerage said.

Investec cut its FY16E/17E earnings per share forecasts by around 31%/30% to reflect the additional £350m headwinds to Civil Aerospace and Marine profitability in full year 2016.

It also reduced its FY15E/16E/17E dividend forecasts by around 51%/51%/49%, saying Rolls will likely opt to increase earnings cover to strengthen the balance sheet and maintain the current credit rating.

“The downgrades to Trent 500 and 800 engine aftermarket revenues should increase investor concerns on the useful lives of Rolls’ engines and the embedded value of the installed base,” Investec said, as it reiterated its ‘sell’ rating on the stock.

At 1216 GMT, Rolls-Royce shares were down 0.5% to 552.50p.