Rolls-Royce has plenty to do though clouds might be lifting for air travel, says broker

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Deuetsche Bank has decided it is time to turn bullish on global plane makers and supplier after the travails of the Covid-19 storm.


Global air traffic remains under pressure due to travel restrictions, said the German broker, but it sees green shoots in domestic markets and expects rapid vaccine roll-outs to spark a short-haul traffic recovery from the second half of 2021.


Narrowbody (NB) plane exposure, therefore, is better than widebody, it says, with Airbus (Buy, TP EUR108) its top pick.


Among the London-listed groups, the broker has also started to look at aero engine maker Rolls-Royce PLC (LON:RR.) for the first time, while it has slightly upgraded its target for BAE Systems PLC (LON:BA.)


Rolls Royce shares will continue to be weighed down by the underperformance of widebody aircraft segment during the air traffic recovery, said Deutsche.


Lower cash generation over the next few years will only partly be offset by cost mitigation actions and some potential disposal of non-core businesses.


“Rolls Royce ability to improve its engine capabilities during this lean time will determine the long-term positioning of the company.”


Hold with a 97p share price target is the broker’s view.


BAE’s target price rises to 685p from 660p, with Deutsche arguing that results solid recent results pave the way for better performances in 2021 and 2022.


Results for 2020, meanwhile, should show a strong recovery in productivity during the second half of the year.


Shares in Rolls eased 1% to 91.8p, while BAE ticked up to 480.7p.

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