Broker snap: Evolution ups target for Rolls-Royce after $3bn+ deal

14th Oct 2011 11:59

After putting its forecasts under review yesterday, Evolution Securities has upped its numbers for power systems giant Rolls-Royce following the firm's disposal of its stake in International Aero Engines (IAE), a deal which the broker estimates has a net present value above $3bn.Rolls-Royce is selling its 32.5% stake in IAE - the business which produces the V2500 engine for the A320 Airbus - to Pratt & Whitney for $1.5bn, in addition to further payments for every hour IAE engines are flown over the next 15 years. Evolution says that more than half the value from the transaction will come from these flying-hours payments."The $1.5bn initial cash consideration recapitalises the balance sheet after the c€1.3bn cash investment in Tognum this year and reinstates strategic optionality," the broker said.After factoring in a £140m improvement in the Civil Aerospace division's operating profit (Rolls-Royce's estimate), the broker raises its group earnings per share forecasts for 2012 by 9.5%. As such, the target price is raised from 720p to 780p. A buy rating is maintained.Shares were down 0.22% at 686.50p, retreating after a strong day yesterday which saw the share price surge well over 9%.BC