Oversold Rolls-Royce Holdings PLC (LON:RR) is a ‘buy’, that’s the view of Berenberg.
The European investment bank pitches a new price target at 270p – some 28% higher than the current price of 209p.
“The market has given up on Rolls-Royce, with the current share price implying negative value for the civil aerospace engine business,” Berenberg analyst Andrew Gollan said in a note.
“This is unjustified, in our view, and fails to reflect any improvement potential in a business that is at rock-bottom.”
Gollan described the engineer’s results as “staggeringly bad” but said it marks a low point and there is a path to materially higher cash flows from 2022.
“A weak operating result was expected due to COVID-19 impacts (H1 revenue was down 23% to GBP5.6bn), but significant one-off charges decimated profit and cash.
“The underlying net loss of GBP3.3bn included GBP2.6bn of write-downs, provisions and a charge to close out excessive FX hedges, while statutory earnings took another GBP1bn hit in asset write-downs. Cash flow was reduced by GBP1bn due to a decision to cease the policy of debt factoring. These items will not repeat, and we conclude that H1 2020 is the low point.”
He added: “We welcome new guidance but feel that the “base case” for 2021/22 could prove optimistic, with higher COVID-19 infection rates slowing the traffic recovery.
“We are more cautious and assume EFH in 2022 will still be 30% below 2019 levels. Nevertheless, this generates a rapidly improving profit and cash profile from 2022.”