Canaccord sees 'trouble ahead' for Rolls-Royce, cuts to 'hold'

3rd Nov 2014 10:19

Canaccord Genuity has lowered its recommendation and slashed its target price for Rolls-Royce, saying it sees "trouble ahead" for the engine maker as some divisions enter a period of slower growth.The broker said it has "tempered our expectations for group earnings progression" after Rolls-Royce downgraded its 2014 and 2015 growth guidance last month.As such, the stock is now rated 'hold' (previously 'buy') and the target price has been cut from 1,200p to just 850p."We see Rolls-Royce as a business in cultural transition," said analyst Charlotte Keyworth."Year-to-date the shares have fallen 36%, driven we believe by two factors: divisional profit warnings in every non-civil aerospace market in 2014, and market perception of the company's poor financial communication leading to questions related to management control of the underlying business."Given the uncertainty of future restructuring costs in 2015, lower free cash flow expectations and "below-peer-average" civil margins, Keyworth reckons that Rolls-Royce should trade at a 5% discount to the sector, as opposed to the 5% premium previously.The shares were up just 0.3% at 845.74p by 10:30 on Monday.