Rolls-Royce shares fall as main stakeholder pushes for board refresh

• Rolls-Royce (LON: RR) share price closed 2% lower at 114.6p on Tuesday (30 August)
• Earlier, its largest investor Causeway Capital said it believes RR’s board ‘needs some fresh thinking’
• The aviation engineer has also reportedly invited several investment houses to pitch to become its new house broker
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Rolls-Royce’s largest investor calls for board update

Rolls-Royce shares closed nearly 2% lower on Tuesday, after its biggest investor called for a much-needed update of its board of directors.

Jonathan Eng, portfolio manager at Causeway Capital, which owns around 9% of the company, said one of the questions he will be posing to incoming chairman Anita Frew is whether ‘we have the right people now that will ask questions when sticky situations come up because they will’.

Although Eng believes Rolls-Royce’s current board had been ‘fine for what it was’, he believes the board ‘needs some fresh thinking’, he told The Financial Times.

Eng added that he would like the company to put greater emphasis on its power systems business, whose revenue analysts believe could surpass pre-pandemic figures.

‘With a stroke they can become an aerospace and defence company and they can fix their balance sheet issue in one go,’ said Eng.

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Rolls-Royce to change house brokers?

The aviation engineer is also reportedly seeking to replace its long-time house brokers Jefferies and Morgan Stanley as it begins to rebuild its market valuation.

The FTSE 100 company is said to have invited other investment firms to pitch for the position.

The new house brokers, if they materialise, will be tasked with the tall order of reviving investor interest in the Rolls-Royce stock, which has been wiped out by over 50% since the start of the Covid-19 pandemic.

Rolls-Royce has declined to comment.

Read more: Top 5 UK stocks to watch in September 2021

What’s the latest stock outlook?

Nevertheless, the stock is the best-performing on the FTSE 100 in the last 30 days, having rallied over 12% during this period.

The outlook on the stock also remains positive, with analysts expecting the aviation sector to bounce back strongly in the coming years.

Case in point: JPMorgan analysts raised their price target on RR two weeks ago to 130p from 105p, on the back of higher earnings forecasts over the next three years.

The firm also predicted that a reported sale of the group’s Spanish unit ITP Aero to consortium-led investment house Bain Capital for a rumoured €1.6bn (£1.5bn) could boost free cash flow to around £750 million by 2023.

Finally, the analysts noted that Rolls-Royce’s first half underlying profits for 2021 beat consensus estimates by £536m, which indicated that its cost-cutting programme is starting to pay off.