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Are Rolls-Royce shares worth buying?

Although analysts have set higher price targets on Rolls-Royce shares, the overall recommendation remains neutral.

  • Rolls-Royce (LON: RR) share price shoots up to 112 pence on Monday (13 September)
  • The aircraft engine maker announced the sale of its shareholding in AirTanker Holdings for £189 million
  • The stock, which is up 2% in the last one month, has a consensus rating of ‘hold’
  • Feeling bullish or bearish about Rolls-Royce shares? Open an account with us to go long or short on the stock.

Rolls-Royce stock price: what’s the latest?

Rolls-Royce shares closed 2.5% higher on Monday, after it agreed to sell its stake in AirTanker Holdings Limited.

The aircraft engineer said it will offload its 23.1% shareholding in AirTanker Holdings to Equitix Investment Management Limited for cash proceeds of £189 million.

This includes the repayment of shareholder loans and accrued and deferred interest of approximately £47 million.

The transaction is expected to complete by the end of the first quarter of 2022, subject to regulatory approvals.

There is no merger control condition in the deal. Proceeds will be used to reduce net debt. Remaining AirTanker shareholders have pre-emption rights over the Rolls-Royce shares and loan notes.

AirTanker Holdings Limited is a joint venture with Airbus, Babcock, and Thales. It owns 14 A330-200 Voyager aircraft which are powered by Trent 772B engines, a derivative of the Trent 700 engine.

Tom Bell, President Rolls-Royce Defence, said: ‘The sale of our shareholding in AirTanker Holdings is another important step towards achieving our Group target to generate at least £2bn from disposals, as announced last year, to help rebuild our Group balance sheet in support of our medium-term ambition to return to an investment grade credit profile.’

What’s next for RR shares?

The stock is up 2% in the last 30 days, and up 8.4% year to date.

RR has a consensus rating of ‘hold’ and price target of 119p, based on the latest analyst data published by MarketBeat.

The price target equates to a potential 6.3% upside from the counter’s last traded price of 111.94p.

The latest price case came from JPMorgan analysts a month ago. They raised their price target on RR to 130p from 105p, on the back of higher earnings forecasts over the next three years.

The firm also predicted that a reported sale of the group’s Spanish unit ITP Aero to consortium-led investment house Bain Capital for a rumoured €1.6 billion (£1.5 billion) could boost free cash flow to around £750 million by 2023.

Finally, the analysts noted that Rolls-Royce’s first half underlying profits for 2021 beat consensus estimates by £536 million, which indicated that its cost-cutting programme is starting to pay off.

Elsewhere, Deutsche Bank analysts also boosted their price target to 116p from 113p, but kept a ‘hold’ rating, while Societe Generale raised its fair value estimate to 100p from 95p alongside a ‘sell’ call.

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*Based on revenue excluding FX (published financial statements, June 2020)

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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