Rolls-Royce Holdings PLC (LON:RR.) faces lower risks around its troublesome Trent 1000 engine and with the ‘widebody’ aircraft market picking up, analysts at BofA Merrill Lynch have upgraded their recommendation on the shares.
Merrill Lynch lifted its rating back to ‘neutral’ with a price target of 690p, reversing its downgrade to ‘underperform’ that had been predicated on a weaker market for wide body aircraft, ie those with two passenger aisles between the seat.
After Rolls’ results last week, the Merrill analysts said they think this weakness “has largely played out”.
Another worry has been the problem-plagued Trent 1000 engine, though the analysts said the growth in maintenance, repair and overhaul capacity and the spare engine pool “makes us believe we are close to the peak in T1000 pain.
After multiple credit and outlook downgrades from ratings agencies, the analysts had also had been worried about the risk of an equity raise alongside the results, but this has been nixed by a stronger profit and free cash flow figure.
“Is Rolls a buy?” they wondered, rhetorically, with growing confidence that Trent 1000 is “hitting a trough”.
“Not in our view,” they answered, as the widebody market remains subdued and the quality of the cash flow remains “questionable”.