JPMorgan Cazenove upped its price target on engine maker Rolls-Royce to 130p from 105p on Tuesday, as it argued the shares could outperform on the back of higher consensus earnings per share estimates in the next few months, and the potential for the ITP disposal to be announced.
With its first-half results, Roll-Royce reported ITP as a discontinued operation. “This suggests RR has confidence in completing the disposal,” JPM said.
“We also note a number of other M&A transactions in the sector have recently been announced, at large premiums. Thus we would not be surprised if the ITP disposal is confirmed soon, at a price higher than many expect.”
The bank said it’s assuming a disposal price of £1.4bn, but a higher price is possible.
Nevertheless, JPM – which kept its rating at ‘neutral’ – has concerns over structural challenges facing the company’s Civil Aero business and its Power Systems business, as well as the group’s capital structure.
JPM lifted its 2022-24 EPS estimates by 49%/31%/25% and its 2023-24 FCF estimates by around £100m per annum.
