Investec reiterates 'buy' on "shareholder-friendly" Rolls-Royce

19th Jun 2014 09:16

Investec has kept a 'buy' rating for Rolls-Royce, labelling the engineer as a "shareholder-friendly diversified industrial" after a potential £1bn share buyback was announced on Thursday.The company said it would begin the repurchase programme if it succeeds in selling its energy gas turbine and compressor business to Germany's Siemens at the end of 2014."We do not believe the share buyback was expected by investors and, as such, we think it is likely to be taken very positively," Investec said.Meanwhile, the broker said that Rolls-Royce's comments about it not having any plans for material acquisitions "show that management have taken on board concerns raised by investors in recent months and suggest Rolls will pursue its strategy to become a diversified industrial more organically and less via M&A".The company also confirmed its guidance for 2014 and 2015, which Investec believes should allay investors' concerns on the large second-half weighting to profit this year.Rolls-Royce said would it reduce group capital spending towards 4% of underlying revenue within three to five years from the 2013 figure of 4.9%. This is "positive for cash generation in medium term and better than our forecasts", the broker said."We believe today's RNS and the Capital Markets Day starting at 09:00 are likely to boost confidence in management and drive the share price."Investec maintained its 1,225p target price for the stock, which was up 6.2% at 1,073p by 09:34.BC