Rolls-Royce's management needs a change in strategy, says Investec

28th Nov 2014 12:33

Investec has said that management at engine maker Rolls-Royce should take decisive action to repair investor confidence, which has been "shattered" during 2014.The stock has fallen by around 34% since the start of the year on the back of weaker trading, poor communication and a realisation that the business is still "operationally immature", according to Investec analyst Rami Myerson.He said that investors have been concerned that Rolls-Royce's board is determines to pursue becoming a diversified industrial firm without paying attention to consequences of headwinds on profits and cash."[The] significant share-price decline this year should be a catalyst for Rolls-Royce's board to reconsider the optimal strategy going forward," Myerson said.He highlighted three possible options for the company: 1) to "maintain the status quo", developing the group as a diversified industrial; 2) break the group into two listed entities; or 3) sell non-aerospace assets and return cash to shareholders."Under each option, we see meaningful upside, but believe the latter two are lower risk and would see value realised more quickly. We urge the board to consider all options as a priority."The broker kept a 'hold' rating but raised its target price from 850p to 900p for the stock, which was trading down 2.2% at 840.99p by 12:29 on Friday.