{"id":105276,"date":"2026-08-17T16:06:12","date_gmt":"2026-08-17T16:06:12","guid":{"rendered":"https:\/\/www.europesays.com\/britain\/105276\/"},"modified":"2026-08-17T16:06:12","modified_gmt":"2026-08-17T16:06:12","slug":"citi-raises-rolls-royce-price-target-by-50-as-data-centre-demand-boosts-outlook","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/britain\/105276\/","title":{"rendered":"Citi raises Rolls-Royce price target by 50% as data centre demand boosts outlook"},"content":{"rendered":"

\"Cables<\/a> Cables in a data centre \u00a9Adobe Stock Images <\/p>\n

Citigroup has increased its price target for Rolls-Royce Holdings (LSE:RR.) by around 50%, raising it to 1,647 pence from 1,101 pence after stronger first-half results prompted substantial upgrades to the bank’s long-term profit and cash flow forecasts. <\/p>\n

Citi lifted its longer-term earnings and cash generation estimates by between 30% and 40%, with accelerating demand from data centre customers emerging as a major growth driver for Rolls-Royce’s Power Systems business. <\/p>\n

Despite the higher valuation, the bank retained its “neutral” recommendation. With Rolls-Royce shares trading at \u00a315.25, Citi’s new target implies an expected total return of 8.6%, below the 15% required by the broker to justify a “buy” rating. <\/p>\n

Power Systems overtakes Civil Aerospace in Citi valuation <\/p>\n

One of the most significant changes to Citi’s investment case is the growing importance of Power Systems. <\/p>\n

The division has now overtaken Civil Aerospace as the largest contributor to the broker’s fair-value assessment. Citi’s sensitivity analysis assigns 504 pence per share of value to Power Systems, compared with 353 pence for Civil Aerospace. <\/p>\n

Strong demand from data centre operators is underpinning the division’s growth outlook. Citi now forecasts a long-term Power Systems margin of 23.5%, considerably above Rolls-Royce’s own medium-term target range of 18% to 20%. <\/p>\n

The bank increased forecasts across all three of Rolls-Royce’s main divisions, although it applied different assumptions regarding the sustainability of recent improvements. <\/p>\n

Citi cautious on Civil Aerospace profit boosts <\/p>\n

For Civil Aerospace, Citi’s upgraded estimates incorporate contract catch-ups that contributed a net \u00a3497 million during the first half, together with \u00a3125 million of releases from onerous contract provisions. <\/p>\n

However, the bank cautioned that much of this benefit was non-recurring and non-cash. <\/p>\n

Over the longer term, Citi expects annual contract catch-ups to settle at approximately \u00a3100 million, substantially below the level recorded during the first half. <\/p>\n

Defence margins expected to normalise <\/p>\n

Rolls-Royce’s Defence division achieved a record margin of 21% in the first half, comfortably exceeding the company’s medium-term target of between 14% and 16%. <\/p>\n

The performance was supported by a favourable sales mix, including strong international business and higher aftermarket activity. <\/p>\n

Citi does not expect the 21% margin to be sustainable over the longer term, instead forecasting Defence margins of approximately 16% to 16.5%. <\/p>\n

Small Modular Reactor business adds further value <\/p>\n

Citi separately values Rolls-Royce’s Small Modular Reactor operation at between 87 and 90 pence per share. <\/p>\n

The broker used two approaches to estimate the business’s potential value. One assumes Rolls-Royce eventually scales production to eight SMR deliveries annually, while the other models the company capturing a 25% share of a global market potentially reaching 400 units by 2050. <\/p>\n

Citi adds the resulting SMR valuation to enterprise value when calculating its overall equity price target for Rolls-Royce. <\/p>\n

Citi forecasts \u00a35.69 billion of shareholder free cash flow by 2028 <\/p>\n

The broker’s discounted cash flow model assumes compound annual profit growth of 12.2% over the next five years, followed by 8% growth between years six and 10 and a perpetual growth rate of 3%. <\/p>\n

Its valuation also incorporates operating cash conversion of 110% and a weighted average cost of capital of 9%. <\/p>\n

Citi expects Rolls-Royce group sales to reach \u00a322.99 billion in 2026 before increasing to \u00a328.62 billion by 2028. <\/p>\n

Free cash flow available to shareholders is forecast to climb to \u00a35.69 billion in 2028, reflecting the broker’s substantially more optimistic view of the group’s long-term earnings and cash-generation potential. <\/p>\n","protected":false},"excerpt":{"rendered":"Cables in a data centre \u00a9Adobe Stock Images Citigroup has increased its price target for Rolls-Royce Holdings (LSE:RR.)…\n","protected":false},"author":2,"featured_media":105277,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[20731],"tags":[34001,21129,21222,1238,23179],"class_list":["post-105276","post","type-post","status-publish","format-standard","has-post-thumbnail","category-rolls-royce","tag-citigroup","tag-civil-aerospace","tag-power-systems","tag-rolls-royce","tag-rolls-royce-holdings"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@UnitedKingdom\/117111710499525322","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/105276","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/comments?post=105276"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/105276\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media\/105277"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media?parent=105276"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/categories?post=105276"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/tags?post=105276"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}