Broker snap: Rolls upgraded but upside risk limited

16th Feb 2011 10:15

UBS is no longer a seller of engine maker Rolls-Royce, but still sees little scope for the group to materially beat expectations.The broker upgrades Rolls-Royce to a 'neutral' recommendation following its 2010 results, saying that "assuming [it's] premium valuation will persist, then there is less reason to remain a seller of the stock and we upgrade our rating."However, "Rolls's Total Care Accounting means that civil after market growth for 2011 has already been largely predetermined through the number of engines/pounds of thrust sold in the prior year."The broker says that there is little upside risk to its 10% after market growth assumption for the current year, and notes that a re-rating from here seems less likely, particularly if its view on a limited earnings per share upside is correct.With the market determined to value Rolls-Royce at a premium to the sector persists UBS has raised its target price to 660p, from 500p.