(Bloomberg) — Rolls-Royce Holdings Plc got a rare sell rating on Tuesday as Berenberg downgraded last year’s biggest riser in Europe’s benchmark index, citing concerns around a key jet engine.
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Analysts including Philip Buller cut the stock from hold, noting comments from Emirates President Tim Clark at November’s Dubai Air Show about the performance of Rolls-Royce’s XWB-97 engine in the hot and sandy environments of the Middle East.
“If history is a guide, this is the kind of issue that can derail medium-term margins for companies in the jet engine business,” the analysts wrote in a note. “We are surprised at how sanguine the market is about the issues facing the XWB-97 engine when operating in ‘non-benign’ environments.”
Berenberg also said that while it’s been impressed by the company’s new Chief Executive Officer Tufan Erginbilgic, it’s still early days in terms of executing his plans and the nature of the aerospace industry means significant risks lie ahead.
Rolls-Royce shares more than tripled last year amid a resurgence in demand for its engines powering long-haul aircraft following the Covid-19 pandemic.
Berenberg is one of only two banks with a sell or equivalent rating among 21 firms surveyed by Bloomberg. Its price target of 240 pence is the lowest of all those, implying almost 20% downside.
Read: Rolls-Royce Tries to Keep Gains Going After Record Returns
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