Rolls-Royce shareholders are reaping the rewards of the British engineering giant’s quite remarkable recovery.
Less than three years ago boss Tufan Erginbilgic declared that the 119-year-old firm was a ‘burning platform’ – and vowed to turn its fortunes around.
The shares have since soared, rising another 10pc to a record high above 1,100p following a bumper update today. That gave the Derby-based group a value of £93.5billion – making it one of the five biggest companies listed on the London stock market.
The rise is extraordinary by any standards.
Rolls is up 85pc this year and more than 1,000pc – or 11-fold – since ‘Turbo’ Tufan as he is known took over at the start of 2023 with shares priced at 93.2p each.
An investor who bought £1,000 of shares when he climbed aboard would be sitting on well over £11,000 today.
In a further boost for shareholders, Rolls-Royce is paying dividends for the first time since 2020. All in all, it will hand £1.9billion to them this year.
Rolls is up 85pc this year and more than 1,000pc – or 11-fold – since ‘Turbo’ Tufan Erginbilgic took over at the start of 2023
Rolls makes and services engines for commercial airlines including Boeing and Airbus
‘Rolls-Royce is ticking all the boxes for investors,’ says Neil Wilson, UK investor strategist at Saxo.
But can the turbocharged growth continue? And is it the right time to buy, cash-in some gains – or sell out altogether?
Rolls-Royce was devastated by the pandemic as international travel was halted – meaning there was no demand for new plane engines or repairs.
The company described the period as its ‘darkest hour’ since it was forced into liquidation in the 1970s.
Taking the helm at the start of 2023, Erginbilgic pledged to get the iconic company back on track – a task that City insiders agree has been successful to date.
The former BP executive initially vowed to quadruple the company’s profits to as much as £2.8billion by 2027.
In its latest half-year results today, it said it was on course to make as much as £3.2billion this year.
In a bid to boost its margins, Erginbilgic has slashed costs, announcing 2,500 job cuts in 2023 – up to 6pc of its workforce.
Rolls, which makes and services engines for commercial airlines including Boeing and Airbus, has been boosted by the recovery in the travel industry.
More planes in the sky means more money in the bank.
Victoria Scholar, head of investment at Interactive Investor, hails Rolls as a standout stock market winner
Rolls also makes engines for fighter jets including the Eurofighter Typhoon and F35 as well as nuclear reactors to power Royal Navy submarines. As such, it has benefited from increased defence spending as Europe races to re-arm amid accelerating global tensions.
And it has been chosen by the Government to build Britain’s first mini nuclear reactors.
Investors now have high expectations, leaving Erginbilgic with little margin for error. A small earnings miss could cause the stock to tank, analysts warned.
There was no such ‘miss’ in its half-year results today.
Profits hit £1.7billion – compared with £1.1billion a year earlier – and revenue jumped 11pc from £8.2billion to £9.1billion.
So in terms of the shares, what do the experts say?
Chris Beauchamp, chief market analyst at IG, reckons ‘the re-rating may still have legs’ – meaning the shares are likely to fly even higher.
Victoria Scholar, head of investment at Interactive Investor, hails Rolls as ‘a standout stock market winner’ and the best-performer on the FTSE 100 of the past two years.
She says investors looking for ‘value’ would think buying now ‘would make little sense after such a stellar run’ but adds that those who follow trends ‘might argue there’s more room to run’.
She adds: ‘It wouldn’t be surprising to see some prudent investors engaging in some profit taking at this stage, reinvesting the proceeds of at least part of the holding into a more undervalued name with greater potential for upside.’
Of the 17 brokers that cover Rolls-Royce, four give the stock a ‘strong buy’ rating and eight say ‘buy’.
Four say existing investors should hold their shares, and just one recommended that they sell, according to Refinitiv data.
Aarin Chiekrie at broker Hargreaves Lansdown notes Rolls’ plan to return to the market for short-haul narrow-body aircraft, which is seen as ‘the single biggest opportunity for growth in the UK over the next 50 years’.
He adds: ‘With a growing track record of over-delivering and more potential catalysts ahead, there are plenty of reasons for investors to remain positive about Rolls-Royce’s future.’
Russ Mould, investment director at AJ Bell, notes ‘by simple dint of mathematics, the valuation is not as attractive as it was, because of the huge share price gain’.
He adds: ‘Value hunters may start to look elsewhere and if they’ve missed it they may be reluctant to jump in now.’
But he says there is little sign of the recovery running out of steam: ‘Having already delivered a stellar turnaround, Rolls-Royce is showing no signs of taking its foot off the pedal. Shareholders are absolutely delighted as upgraded earnings guidance helps to rev the share price even higher.’
This, he believes, may be just the tonic the London stock market needs after years in the doldrums and concerns that companies are fleeing to other exchanges in cities such as New York.
‘Rolls-Royce is the poster child for what’s capable on the stock market,’ he says.
‘While Rachel Reeves is keen for more people to invest and make a better return than cash, even she wouldn’t expect investors to always make Rolls-Royce kind of returns. But the gains from holding Rolls-Royce show that big returns aren’t simply a fantasy on the UK market.
‘It’s also a welcome reminder that Britain has plenty of business champions, with Rolls-Royce the cream of the crop.’
