Shares of engine maker Rolls-Royce offer “significant long-term value”, Citi said on Tuesday.
The bank, which rates the stock at ‘buy’, said: “We do not know when the wide body market will recover, but we do believe it will.
“When it does, we expect Rolls-Royce to recover faster (as it has more new deliveries adding to the fleet and fewer old aircraft being retired).”
It added: “In our view, the often-cited £750m free cash flow (10% yield) as ‘early as 2022’ is not a sufficient reason to buy the stock, but the £1.5bn+ FCF in the longer term (20%+ FCF yield) is.”
The bank said cash flow could be stronger than expected in the medium term as working capital is driven out, but it regards this as “a very nice one-off benefit” which should be valued accordingly.
At 1300 BST, the shares were up 3.7% at 90.23p.
