Rolls-Royce PLC (LON:RR.) is a risky but appealing long term recovery play according to analysts at Citigroup, who admit they don’t know when the wide-body civil jet market will recover but are convinced that it will.
And when it does, Rolls-Royce will bounce back faster than its peers (as it has more new deliveries adding to the fleet and fewer old aircraft being retired), argues Citi.
“In our view, the often-cited GBP750mln free cash flow or FCF (10% yield) as “early as 2022” is not sufficient reason to buy the stock, but the GBP1.5bn+ FCF in the longer term is (20%+ FCF yield) is.
“Cash flow could be stronger than expected in the medium term as working capital is driven out, but we regard this as a (very nice) one-off benefit and it should be valued accordingly.”
Buy/high risk is the investment rating. Shares were up 3.5% to 90p.