MARKET REPORT: Rolls-Royce dives after JP Morgan downgrade

MARKET REPORT: Rolls-Royce dives as JP Morgan casts doubt on its plans for mini nuclear power stations and electric planes

Shares in Rolls-Royce were one of the biggest blue-chip fallers after JP Morgan cast doubt on its new business.

The jet engine maker tumbled 5.5 per cent, or 5.21p, to 89.79p as the investment bank downgraded the stock to ‘underweight’ from ‘neutral’, and slashed their target price to 75p from 140p.

The analysts said Rolls’ ‘New Markets’ division, which is focused on building small nuclear reactors and electrical power for small aircraft, offered ‘no guarantee of good profits’, and ‘might even be loss-making into the 2030s’.

Rolls-Royce fell 5.5% as JP Morgan downgraded the stock to ‘underweight’ from ‘neutral’, and slashed their target price to 75p from 140p

Rolls-Royce fell 5.5% as JP Morgan downgraded the stock to ‘underweight’ from ‘neutral’, and slashed their target price to 75p from 140p

They added that while demand for the nuclear reactors could grow strongly as countries sought to cut emissions and increase energy security following surges in oil and gas costs, the technology would ‘need to compete with other energy sources’ and there was a high risk the first reactors would be well over budget.

JP Morgan also said forecasts for the market for electric propulsion systems for small aircraft looked ‘very optimistic’. 

As a result of the uncertain outlook for the division and lower expectations for the civil aviation arm, the analysts cut their 2022 earnings forecasts by 77 per cent.

They were also downbeat on recent speculation that the company could be involved in a merger or takeover, which briefly sent the stock soaring last month. ‘We struggle to think of any realistic buyer for [Rolls-Royce] in its current perimeter,’ JP Morgan said.

The FTSE 100 slipped 0.6 per cent, or 41.65 points, to 7576.66 while the FTSE 250 was down 0.5 per cent, or 105.47 points, at 21009.61.

A squeeze on pay in the UK as inflation surged weighed on sentiment amid concerns the cost-of-living crisis was worsening.

Slower retail sales growth in March and a drop in consumer confidence to its lowest level since the 2008 financial crisis added to the growing fears.

Stock Watch – Gresham House

Gresham House shares hit a record high following strong fundraising in its first quarter.

The asset manager raised over £300million in the first three months of 2022, with two of its venture capital trusts hitting their maximum targets for the period. 

Its affordable housing funds raised £80million.

The firm also said that the value of its Gresham House energy storage fund, which invests in battery technology, rose 42.6 per cent to £511.7million.

The shares jumped 2.1 per cent, or 21p, to 1005p.  

‘Discretionary spending is unsurprisingly taking a hit as families focus on trying to afford the essentials,’ said Victoria Scholar, at Interactive Investor.

Supermarkets were among the major fallers as analysts at broker Shore Capital warned momentum had ‘dissipated’ amid rising food prices and higher costs caused by inflation. 

That sent Tesco shares down 1.7 per cent, or 4.6p, to 270.6p while Sainsbury’s fell 2.6 per cent, or 6.5p, to 244.6p and Ocado dropped 4.3 per cent, or 53.5p, to 1184.5p.

Meanwhile, warnings that rising long-term sickness caused by Covid were pushing more people out of the labour market unnerved investors alongside a smaller than expected rise in employment in the three months to February.

However, oil stocks supported the FTSE 100, with Brent crude back above $100 a barrel as China eased some of its Covid restrictions in Shanghai, allaying concerns of a slowdown in demand.

BP rose 2.4 per cent, or 9.3p, to 395.95p while Shell was up 1.4 per cent, or 30.5p, at 2165.5p.

Stock trading platform Plus500 surged 6.2 per cent, or 91p, to 1570p after upgrading its forecasts.

It expects full-year results to be ‘ahead of current market expectations’ following a strong first quarter that saw revenues climb 33 per cent year-on-year to £208million.

The jump came despite a 35 per cent drop in active customers.

Blue-chip electronics group Electrocomponents rose 1.6 per cent, or 16p, to 1024p after a solid trading update. 

It reported revenue growth of 26 per cent for the year to the end of March, reiterating that it expects full-year profit margins to be at ‘the top end’ of estimates.

Meanwhile, AIM-listed consumer goods group Supreme sank 17.2 per cent, or 32.5p, to 157p after warning higher commodity prices, as well as rising wages and transport costs, were hitting business.