Rolls-Royce Holdings PLC's (LSE:RR.) share price target has been hiked by Deutsche Bank but it cautioned that the engine-maker continues to face uncertainties about the level of work from its airline end market.
The FTSE 100 group’s large engine civil aftermarket revenues are largely dependent on widebody international aircraft flying, the bank said, but these flights remain “under pressure”.
Free cash flow in 2022 is seen as “barely breaking even”.
Widebody engine flying hours in 2021 were likely to have modestly improved to 46% of pre-pandemic 2019 levels, from the 43% seen at the end of 2020, the Deutsche analysts calculated.
“Despite good recovery expected in 2022, they are likely to reach around 70% of 2019, well below narrow body engine peers.”
Deutsche lifted its target price to 130p from 116p and kept its 'hold' rating, adding that deliveries of Rolls’ Trent 1000 engines are also still at "very low" levels "with no clear visibility in 2022", not to mention the wider sustainability agenda around all engine makers.
This was in contrast to the European aerospace market as a whole, where Deutsche said the “stars seem well aligned in 2022” as analysis indicates global domestic traffic will recover by end of 2023, with Omicron a “temporary blip”.
However, the situation in Asia is seen as increasingly challenging international traffic recovery scenarios until late 2025.
Top picks for the bank in civil aerospace are Airbus, MTU Aero and Safran, which are best positioned to weather the continued supply chain and inflationary pressure.