Rolls-Royce share price: where next as JP Morgan gives grim outlook?

Analysts from the US-based investment bank gave a grim outlook for the struggling engine maker, with Rolls-Royce shares expected fall by more than 50% amid a myriad of concerns that threaten its future.

  • Rolls-Royce’s share price expected to fall by more than 50%, says JP Morgan
  • The engine maker’s free cash flow is under renewed pressure
  • Stronger pound weighs on Rolls-Royce and other UK exporters

Rolls-Royce was the biggest loser on the FTSE 100 on Tuesday, with the stock falling 12% amid a dismal outlook, with the company looking to raise £2 billion via disposals after recording a major half-year loss in August.

Rolls-Royce reported a pre-tax loss of £5.3 billion in the six months to June 30, including £1.1 billion in write-offs and impairments, a £2.6 billion loss on foreign exchange hedging contracts, along with restructuring costs of £366 million.

‘The Covid-19 pandemic has significantly affected our 2020 performance, with an unprecedented impact on the civil aviation sector with flights grounded across the world,’ Rolls-Royce CEO Warren East said in a statement.

However, the stock rebounded 6% on Wednesday, only for it to see much of those gains lost as the session played out, with the engine maker trading at 210p per share at the time of publication.

JP Morgan offers distressing outlook for Rolls-Royce

To make matters worse, analysts at JP Morgan downgraded their price target for the stock from 90p to 80p per share, implying a potential downside of -62%.

The US-based investment bank blamed the price target cut on the engine maker’s cash flow coming under renewed pressure, with the company forced to downgrade its 2021 free cash flow guidance by €300 million to €1 billion.

Analysts at JP Morgan also expressed concerns about Rolls-Royce's ability to continue operating due to the severely challenging market conditions and that sentiment seems to be shared by some of the company’s key shareholders, with activist investor ValueAct disposing of all its shares.

Stronger pound adds to Rolls-Royce woes

Sterling continues to push higher this week, with investors seemingly ignoring the fact that Brexit talks between London and Brussels are at a impasse and the prospect of a no-deal exit appears increasingly likely.

However, the stronger pound is less to do with the economic strength of the UK economy and more about the weakness of the US dollar, which suffered another blow after the US Federal Reserve’s Richard Clarida said that a cap on Treasury yields could materialise in the near future.

‘With the Fed laying out a new environment where even a sharp rise in inflation will not stifle their huge stimulus efforts, traders are clearly preparing for a drawn out period of easing as continued by the protracted dollar decline,’ Josh Mahony, senior market analyst at IG, said.

GBP/USD: technical analysis

Dollar strength continued to weigh here as well for GBP/USD, pushing the price back from its latest high, according to Chris Beauchamp, chief market analyst at IG.

‘While the price has dropped below the 50-hour simple moving average (SMA) of $1.3384, it has moved momentum indicators back towards oversold readings, providing the potential for a new higher low and an eventual push higher,’ he said.

‘Further declines bring $1.325 into view, particularly as no-deal Brexit headlines make a return.’

How to trade stocks with IG

Looking to trade Rolls-Royce and other stocks? Open a live or demo account with IG and buy (long) or sell (short) shares using derivatives like CFDs in a few easy steps:

  1. Create an IG trading account or log in to your existing account
  2. Enter ‘Rolls-Royce Holdings’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.


Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.