US inter-continental flights resuming in November is a big plus for engine maker Rolls-Royce PLC believes broker Berenberg, which has upped its share price target to 160p.
Long-haul travel has lagged domestic travel markets but the US move will boost engine flying hours (EFH) for Rolls in the first half of 2022 and beyond, according to the broker.
Added to at least GBP1.3bn reductions in costs, this will translate to materially improved financial performance over the medium term argues Berenberg.
Underlying earnings can treble 2021-24 even on conservative assumptions between GBP1.8bn, while yearly free cash can climb to GBP1.1bn.
Even after a 12% rally since the US news, the market is still ascribing very little value to the longer-term potential with the sale of the ITP Aero subsidiary likely to boost sentiment even more.
“The bridge from operating profit to cash is still complicated and concerns in regards to the quality of profit recognised on long-term contracts will probably linger, rightly or wrongly.
“However, if Rolls-Royce can demonstrate a path to mid-teens margins by the middle of the decade, we expect the shares to rate higher.”
Shares rose to 2.1% to 124.8p.