Rolls-Royce shares rally as turnaround takes hold

ROLLS-ROYCE shares rose as the jet engine maker’s turnaround plan received a wave of support from the City.

Analysts said last week’s strong set of results were driven by a recovery in long-haul flying, rising global defence spending and price increases on its products and services. As a result, JP Morgan upgraded its rating on the stock to ‘neutral’ from ‘underweight’ and hiked the target price to 235p from 90p.

Bernstein also lifted the target price to 220p from 168p.

Shares, which have more than doubled so far this year, revved higher by 1.5pc, or 3p, to 209.5p.

JP Morgan said Rolls has significantly beaten expectations in two consecutive set of results.

The investment bank also highlighted comments from chief executive Tufan Erginbilgic, who told investors in February that Rolls was failing to charge enough for its products.

JP Morgan said the company’s pricing on its servicing agreements had been far too low for it to generate good returns. Bernstein echoed a similar sentiment, citing improved profitability in the group’s civil aerospace division. It also said that attention will now turn towards the end of November, when the group is expected to set out its mediumterm targets.

The FTSE 100 fell 0.13pc, or 9.88 points, to 7554.49 and the FTSE 250 dropped 0.39pc, or 72.95 points, to 18861.67, carrying on from last week’s heavy losses.

Housebuilders wobbled after data from Halifax showed house prices, which slid 2.4pc in July, fell for a fourth month in a row.

Taylor Wimpey retreated 0.6pc, or 0.65p, to 118.35p, Berkeley Group lost 0.5pc, or 23p, to 4288p and Persimmon shed 0.4pc, or 4.5p, to 1142.5p.

Shipping broker Clarkson sank into the red after it flagged currency headwinds and a softening rate environment in the rest of 2023. The outlook came after group revenue rose by a fifth to £321.1m in the six months to the end of June while profit was up 24pc to £52.2m. Shares slid 4pc, or 115p, to 2755p.

One of the UK’s biggest estate agency groups issued a profit warning amid ongoing turmoil in mortgage markets.

LSL Property Services said the Bank of England’s larger than expected interest rate hike in June resulted in reduced levels of purchase and remortgage activity.

As a result, profit for the final six months of 2023 is likely to be below its previous forecasts. Shares sank 10.6pc, or 30p, to 252p.

There was mixed fortunes for UK life insurers as Deutsche Bank Research cut their target prices.

The broker also issued a note of caution over the industry’s underperformance, which it said was down to accounting regime changes and a potentially long wait for most companies to provide updates on strategy and capital management.

M&G managed to add 0.1pc, or 0.1p, to 198.2p and L&G gained 0.2pc, or 0.5p, to 228.8p, but Phoenix lost 0.2pc, or 1.2p, to 539.8p and Aviva inched down 0.1pc, or 0.2p, to 384.5p.

Capita came under further pressure as investment bank Citigroup nearly halved its target price on the Government contractor’s stock. The downgrade came after the FTSE 250 group on Friday posted a loss of almost £68m for the first half of 2023 and said it was bracing to take a financial hit of up to £25m following a cyberattack that began in March.

Shares dropped 7.3pc, or 1.6p, to 20.34p.

Unite Group fell 1.6pc, or 15.5p, to 947.5p after brokers at RBC cut its rating on the student accommodation provider’s stock to ‘sector perform’ from ‘outperform’ but maintained a target price of 1100p.