Rolls-Royce shares worth 820p says City broker
Despite the strong performance of Rolls-Royce’s stock price over the last two years, a City broker is expecting the aerospace company to keep leading the FTSE 100 in share price growth.
In a note published today by Panmure Liberum, analyst Nick Cunningham argued that Rolls-Royce’s shares could still increase by more than 40 per cent over the next three years.
The firm’s share price has risen six-fold in the last two years and was the best performer in the FTSE 100 in 2024, thanks to a dramatic improvement in financial performance for the company.
Panmure Liberum forecast that the company’s share price will fall slightly from 567p to 550p over the next year but rise rapidly to 820p in the next three years, up from 400p and 665p respectively.
The analysts credited these predictions partially to a continued rise in civil aviation, which has allowed Rolls-Royce’s cash flow to keep climbing.
Analyst forecasts for civil aviation predict a peak in the industry during 2028, as it has historically hit a high around eight years after a trough, which it last experienced in 2020.
Meanwhile, higher defence spending is also likely to provide a boost to Rolls-Royce’s business, with Panmure predicting margins on defence will increase from 13.9 per cent of the firm’s business to 16 per cent in 2028.
However, the analysts did acknowledge that the stellar growth experienced by Rolls-Royce is not likely to continue at the same pace, stating that profit growth is likely to “continue to be positive, but also less dramatic”.
Additionally, the risk of a higher tax rate in the UK could dent profit brought in from an expanded business, leading Panmure to leave forecasts for earnings per share unchanged from previous analyses of the company.
“There has been little sign of the big working capital outflows caused by the pandemic flowing back in – this may yet come, but the timing is uncertain, and the need to support a fragile supply chain and to hold bigger stocks of parts than before may not fully reverse, even when the supply chain issues are notionally fixed,” warned Cunningham.
Yesterday, Rolls-Royce’s stock price fell around three per cent after suffering a downgrade from Citi.