Berenberg lifts Rolls-Royce price target on US travel boost

Berenberg lifted its price target on engine marker Rolls-Royce to 160p from 150p on Thursday as it said the decision by the US this week to open its borders to vaccinated individuals is a positive step towards a more robust recovery in long-haul travel, which has lagged domestic travel markets.
“For Rolls-Royce, it will help to perpetuate positive trends in engine flying hours (EFH) into H1 2022 and beyond, in our view,” the bank said.

It noted that with at least a £1.3bn reduction in costs this will translate to materially improved financial performance over the medium term. On conservative assumptions, Berenberg is forecasting EBIT to treble from 2021 to 2024 to around £1.8bn and for free cash flow to jump to £1.1bn.

“Even after a 12% rally since the US news, the market is still ascribing very little value to the longer-term potential,” it said.

“Sentiment should improve further with sequential growth in flying activity and, in the coming months, an agreement to sell its ITP Aero subsidiary.”

Berenberg has a ‘buy’ rating on Rolls-Royce.

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