Proactive Investors - Rolls-Royce Holdings PLC (LON:RR.) has proved to recover rapidly from the lows of January’s “burning platform” comments, Jefferies analysts say, prompting a host of upgrades.
An operating margin of 12.4% in the half year to June, compared to 3.4% last time around, proves analysts’ expectations had been too conservative, the investment bank said.
This should stick throughout next year, it continued, with Rolls-Royce’s civil aerospace wing likely to see margins climb into the 15% region based on the aviation sector’s recovery
“Rolls-Royce remains our sector top pick,” Jefferies said, it “now offers an attractive mix of a value profile and recovery potential”.
FTSE 100-listed Rolls hiked full-year guidance before last week’s interim results update, prompting positive feedback from analysts who tip both the recovering aviation sector and boss Tufan Erginbilgic’s turnaround plan helped to boost earnings.
This followed Erginbilgic’s own comments likening the company to a “burning platform” before kicking off his transformation plan early this year.
Jefferies followed suit, ramping up the manufacturer’s share price target from 210p to 310p, which would mark a prospective rise of 49% on Tuesday’s close.
Underlying free cash flow could well hit £2 billion by 2026 meanwhile, according to the bank, up from the company's now guided £1 billion this year.
Volume recovery in the aviation sector will continue to be a key driver going forward, analysts added, given Rolls-Royce is paid based on engine flying times and for services.
Shares in Rolls rose 0.5% to 208.9p on Wednesday.
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