A MAJOR British company is soaring in value and could’ve earned you almost £11,000 over the last five years.
UK engineering giant Rolls-Royce, which makes engines for aeroplanes like Airbus A350 and Boeing 787, revealed its highest-ever profits this week at a staggering £3.5billion.
Its rocketing profits are mainly down to a boom in demand for aircraft engines and power for data centres.
It’s meant the company’s share price has skyrocketed, and left those who invested in it with excellent profits.
Analysis by AJ Bell has found that if you’d invested just £25 a month into Rolls-Royce over the last five years, you would now have £10,815.
You would only have put in £1,500 of your own money – so you’d have a huge profit of £9,315 (or more than 600%).
If you’d upped it to £50 a month, you would now have £21,630.
In this case, you still would’ve paid in just £3,000 of your own money – so your profit is £18,630.
Rolls-Royce has also announced good news for those who already hold shares in the company.
It has promised share buybacks of up to £9billion between now and the end of 2028.
A share buyback is when a company buys its own shares back from anyone who is happy to sell their stake.
This means that those holding shares in Rolls-Royce will be £9billion richer very soon – that is, if they decide to sell their shares.
For those who don’t want to sell and what to keep hold of their shares, this could also be good news.
A share buyback could see the value of their investment go up.
That’s because when the company buys back shares, there’s less available to buy on the market – which usually causes the share price of the company go up.
When the share price of a company goes up, that means that the value of your investment goes up too – which means you could make more cash if you decide to sell.
Is investing right for you?
INVESTING can be a great way to grow your money – but you should be aware of the risks.
The stock market can be unpredictable and therefore your investments can go down as well as up.
To have the best chance of protecting your money, you should aim to keep it invested for at least five to 10 years.
This will help you ride out any potential bumps in the market.
Picking individual stocks such as Rolls-Royce is generally riskier than choosing an investment fund.
That’s because investment funds include small shares in lots of different companies, so if one business isn’t doing well then the impact on your money is minimised if others are doing better.
However, individual stocks can help you ‘beat’ the rest of the market if they’re doing well.
If you do choose to buy an individual stock, you should make sure you don’t put too much of your money into it and have a diversified portfolio.
This essentially means not putting all your eggs in one basket and choosing investments across different types of companies and geographical areas.
If you’re unsure of how to do this, you could speak to a financial adviser (who will charge you a fee), get a free financial coaching session from Bestinvest, or read Moneyhelper’s guide to investing as a beginner.
How Rolls-Royce became a ‘ten-bagger’ stock
Investors are now saying Rolls-Royce has achieved “ten-bagger” status.
That essentially means its shares have increased in value by 10 times or more.
They’ve increased so much because Rolls-Royce’s fortunes have changed dramatically in the last few years.
Back in 2020, the global pandemic all but suspended international travel and sent shares in companies such as Rolls-Royce plummeting.
The following year, it had dropped out of the FTSE 100 index of leading UK companies.
By December 2022, it cost just 93p to buy a share in Rolls-Royce – now it’s more than £13, which is a 1,352% rise.
If you’d decided to invest in the company, late 2022 would’ve been the perfect time as shares began climbing again afterwards.
Rolls-Royce began staging a huge turnaround in 2023 as new chief executive Tufan Erginbilgic launched a radical cost-cutting programme.
At the same time, global travel was beginning to recover.
European governments also began pouring billions more into military budgets following Russia‘s invasion of Ukraine in 2022 – boosting demand for Rolls-Royce’s engines for military aircraft.
Now, Rolls-Royce is the best-performing blue-chip (a company that is well-established and respected in its sector, as opposed to up-and-coming businesses).
James Norton, head of retirement and investments at Vanguard, said: “Rolls‑Royce’s comeback has been one of the great British business stories.
“Go back five or ten years and very few people would have seen it coming.”
Should you invest now?
Just because a company has been a great investment in the past, doesn’t mean it will continue to be.
If you’re thinking of buying shares in Rolls-Royce now, you may be wondering whether their value will continue to climb.
Its price is currently at a record high and the good news we’ve seen so far may already be reflected in the price.
However, it could still climb further.
Investors are pinning their hopes on the company winning even more defence contracts in the coming years.
“Given the current elevated-threat environment, defence budgets across many countries are on the rise,” Aarin Chiekrie, equity analyst at investment platform Hargreaves Lansdown, told This is Money.
“With positions in combat aircraft and nuclear submarines, Rolls-Royce looks well-placed to capture some of the increased spending.”
Richard Hunter, head of markets at Interactive Investor said: “Of course, with punchier valuations come higher expectations and more pressure to keep growing earnings to stay in line.
“However, there is nothing in this sparkling set of results which casts any immediate doubt either on the group’s current ability to deliver, nor indeed its outlook over the coming years.”
However, nobody knows what will happen next and even the professionals get this wrong.
For example, we could see another pandemic-like event that suspends global travel and sends shares plummeting again.
Vanguard’s James Norton said: “That’s why we encourage investors to keep the bulk of their money in well‑diversified funds rather than betting heavily on individual shares.
“Someone investing in a FTSE 100 tracker would have enjoyed Rolls‑Royce’s strong run – while still being invested in whatever turns out to be tomorrow’s big winner.”
