Shares in engineering giant Rolls-Royce tanked this morning after bankers at JP Morgan downgraded the stock to ‘underweight’ and slashed its target price.
Bankers cut the target price to 75p from 140p, sending shares tumbling beyond five per cent this morning.
In a note to investors, JPMorgan said it had looked more closely at the engine maker’s ‘New Markets’ division, which focuses on electrical power for small aircraft and small modular reactors, and warned that it did not guarantee long term returns for investors.
“In our view, ‘New Markets’ offers good long-term sales potential but there is no guarantee of good profits and it might even be loss-making into the 2030s,” they said.
The firm is in the midst of a restructuring effort but bankers warned the firm’s diversification “raises the risk for investors” with a heightened potential downside to earnings.
The downgrade to underweight comes after a period of turbulence for the engineering giant which has been rocked by the war in Ukraine and its potential to dampen demand for commercial aircraft.
Analysts at Hargreaves Lansdown said the plunge today comes after a difficult period for the engine maker.
“The company hasn’t been helped by the ongoing conflict in Ukraine, with worries that it could dent confidence in the travelling public for long haul flights in particular and affect its business which is so highly reliant on the health of commercial air travel,” said Susannah Hargreaves, senior investment and markets analyst.
“A massive restructuring effort which is underway has set the stage for recovery and the company is restoring the balance sheet by paying down debt. It’s now a leaner organisation but with the aviation sector still struggling it’s not going to be a smooth ride ahead.’’