Proactive Investors - Rolls-Royce Holdings PLC (LON:RR.)’s ambitious outlook is admirable, according to JP Morgan brokers, but the company is left having to prove itself.
Commenting on new chief executive Tufan Erginbilgic’s plan to transform profitability and cash flow at Rolls-Royce, JP Morgan said he should be wary to set “credible” targets that can be “supported by realistic buildings blocks”.
“We are rather sceptical of many of the things Rolls-Royce is now telling investors,” brokers said, including the firm’s ability to break even on new wide-body jet engine sales and upping prices on long-term service agreement contracts.
Rolls-Royce forecast a £500mln to £700mln growth on 2022’s £792mln long-term service agreement income during last February’s full-year results.
Operating profit was tipped to come in between £800mln and £1bn during the upcoming year meanwhile, alongside free cash flow of £600mln to £800mln.
This would mark increases of up to 52% and 58% respectively on last year’s results.
“We are intrigued by the highly ambitious commentary coming from Rolls-Royce,” JP Morgan added, but this “is hard to reconcile with its historical performance”.
Rolls-Royce shares were rated as ‘underweight’ by JP Morgan, which added the FTSE 100-firm would likely layout “high margin targets” later this year.