Accounting issues to weigh on Rolls-Royce shares, says Citi

6th Mar 2014 11:12

Aerospace and engine maker Rolls-Royce was trading in the red on Thursday as sentiment was dampened by cautious comments from Citigroup, which highlighted concerns about accounting issues at the company.The bank kept its 'neutral' rating and a target price of 1,070p for the stock.Rolls recently adjusted its accounting policy for entry fees received from suppliers following discussions with the Conduct Committee of the Financial Reporting Council (FRC).Citi said that accounting at the company has "long been questioned by some investors due to some apparently relatively aggressive accounting policies".While the financial impact to results is only small - restated earnings per share for 2013 were reduced by 2.2% - the bank believes that ongoing concerns about accounting quality at Rolls may continue to limit upside for the stock.On a positive note, Citi said that long-term growth prospects at the company's civil aerospace business, which accounts for 43% of group revenues, are "attractive", underpinned by a large backlog, leading market share and a significant aftermarket opportunity."We believe RR's civil aerospace business remains its key investment attraction where we see scope for considerable profit growth driven by an increase in volumes and cost improvement initiatives. "However, a mixed outlook for non-civil businesses, concerns over potentially large M&A transactions (following the company's desire to strengthen its medium-speed diesel engine business) and concerns about possible further accounting issues are likely to weigh on RR's share price performance, in our view."The stock was down 2.2% at 1,002.72p by 11:11.BC