JPMorgan Cazenove downgraded Rolls-Royce on Tuesday to ‘underweight’ from ‘neutral’ and slashed the price target to 75p from 140p, sending shares in the engine maker tumbling.
JPM said that following the company’s announcement earlier this year of a new reporting structure, it has taken a deeper look into the new division, ‘New Markets’, which focuses on electrical power for small aircraft and on small modular reactors.
“In our view, ‘New Markets’ offers good long-term sales potential but there is no guarantee of good profits and it might even be loss-making into the 2030s,” it said.
As a result of these new investments and lower expectations for the Civil Aero division, JPM has cut its 2022-25 earnings per share estimates by 77%/61%/38%/25%, leaving it 14%/33%/18% below 2022-24 Bloomberg consensus.
“Given our view that RR’s diversification raises the risk for investors, and further downside risk to earnings, we downgrade RR to UW and add it to the Analyst Focus List,” it said.
At 0825 BST, the shares were down 5.8% at 89.46p.
