Broker tips: Rolls Royce, Elementis, Wheaton Precious Metals

(Sharecast News) - Citi hiked its price target on Rolls-Royce on Monday to 1,100p from 641p, highlighting three main reasons for the move and saying the stock is "expensive on profits multiples" and "about right on cash". Firstly, the bank pointed to increasing explicit forecasts. Citi said it has increased its 2025 profit forecast by 23% and 2029 by 28%. In addition, the bank's free cash flow forecasts have also risen by 13% this year, rising to 20% in 2029.

Secondly, Citi noted an increased mid-term (2030-34) implicit profit growth assumption from 4% to 8%, broadly in line with expected fleet growth. Thirdly, the bank pointed to around 40p of value for SMR.

"Rolls-Royce may look expensive on profit multiples, but it is in line on cash metrics, which we believe more important," said Citi, which also reiterated its 'neutral' stance on the stock. "We forecast 12.3% profit compound annual growth rate over 2025 to 2030 and cash conversion peaking at 120% before trending down to 114%, which we use for our valuation."

Analysts at JPMorgan hiked their target price on Rolls-Royce by 20% to 1,245p on Monday following the group's "exceptionally strong" H1 results.

JPMorgan, which has an 'verweight' rating on the stock, raised its FY25-30 earnings per share estimates for Rolls-Royce by 19%, 13%, 10%, 9%, 10%, and 8%, respectively, with the bigger EPS increase in 2025 being due to a provision release that may not recur at the same level in future years.

"RR remains a compelling investment in our view, offering a combination of strong markets (civil aero; data centres; German defence; civil nuclear renaissance) and a tremendous amount of ongoing self-help/transformation," said JPMorgan. "We believe that higher target multiples are justified by the higher quality of RR's results, with growth now being driven by three strong divisions, with the potential for SMR (small modular nuclear reactors) to add a fourth leg in the 2030s."

Elsewhere, JPMorgan Cazenove downgraded Elementis on Monday to 'neutral' from 'overweight' as it said upside potential was now lower.

The bank said its previous bullish case on Elementis - associated with balance sheet deleveraging, portfolio upgrade and associated improved earnings quality, and better earnings delivery from self-help cost actions - has largely played out.

It said this was reflected in the outperformance of the shares, which were up 13% over the past year, versus the sector down 3%, and up 48% over the past two years versus the sector down 2%.

JPM also said it was reflected in the valuation, which has now re-rated close to Croda and well above the median multiples of diversified chemical companies.

"Owing to a history of takeout offers (in 2020/21) and an improved and focused portfolio since, we continue to view the stock as a potential takeout candidate," said JPM.

However, JPM said the likely take-out multiple of 11-12x EBITDA doesn't offer as much of an outsized upside potential in shares anymore.

Berenberg updated its model for Wheaton Precious Metals following its Q2 results last week, leading it to raise its target price on the stock from 7,200p to 7,800p.

Berenberg said the company delivered record quarterly earnings and strong beats versus consensus, of 7% for adjusted earnings per share and 15% for operating cash flows, which were driven by a combination of higher production, sales volumes, realised prices and margins.

The German bank, which kept its 'buy' rating on the stock, noted that production guidance for 2025 was maintained, and that several near-term development streams were all progressing on track, and highlighted that execution of Wheaton's "compelling" expected 32% volume growth to 2028 was "a key facet" to achieving a continued re-rate higher.

Berenberg said its updated model had lifted its 2025 underlying earnings estimate by roughly 4% and earnings per share by about 3%. However, it also moderated its grade estimates at Wheaton's San Dimas asset in Mexico, which trimmed its 2027 earnings expectation. However, improved operating cash flows increased its end-2025 net-cash forecast by roughly 6%.

"As Wheaton has delivered consistent output from its high-quality baseline portfolio (capitalising on strong precious metals prices), and with its near-term growth projects all progressing on track, we have witnessed a multiple re-rate. We, therefore, lift our NAV multiple to 3x from 2.5x, reflecting a c10% premium to the average trading level since January 2025 of 2.75x (on our NAV estimate)," said Berenberg.

"We maintain our 30x EBITDA multiple, which reflects Wheaton's near-term volume growth trajectory. The shares are currently trading on 3x NAV and 28.3x 12-month forward EBITDA. Note that Wheaton's implied share price on 30x 2027E EBITDA is 8,700p. Further, if we run our model at spot gold and silver prices, our price target increases to 9,400p, representing c25% upside."