Rolls-Royce: A Remarkable Recovery for Shareholders
Rolls-Royce, a British engineering giant founded 119 years ago, has made an extraordinary comeback after facing a “burning platform” just three years ago. Under the leadership of CEO Tufan Erginbilgic, nicknamed “Turbo Tufan,” the company’s shares have risen by 85% this year and by an astounding 1000% since Erginbilgic took over in 2023. This has resulted in a market value of £93. 5 billion, making it one of the top five companies listed on the London Stock Exchange.
The company’s success can be attributed to its recovery from the devastating impact of the pandemic on the travel industry, which heavily affected its business of making and repairing plane engines. However, with the travel industry gradually recovering, Rolls-Royce’s profits have soared, and the company has declared dividends for the first time since 2020, with a total payout of £1. 9 billion to shareholders this year.
Erginbilgic’s plan to quadruple the company’s profits by 2027 is already showing promising results, with the company on track to make £3. 2 billion this year. To boost its margins, Rolls-Royce has implemented cost-cutting measures, including 2,500 job cuts, which have resulted in a 6% reduction of its workforce. The company’s diverse portfolio, which includes making engines for fighter jets and nuclear reactors for submarines, has also contributed to its success, with increased defense spending and being chosen by the Government to build Britain’s first mini nuclear reactors.
The stock market has responded positively to Rolls-Royce’s impressive performance, with analysts predicting that the shares will continue to rise. However, with high expectations from investors, Erginbilgic must maintain the company’s momentum to avoid any potential stock price drops. In its latest half-year results, Rolls-Royce reported a 55% increase in profits compared to the previous year, with revenue also up by 11%.
Experts have mixed opinions on the right course of action for investors. Some believe that the shares still have room to grow, while others suggest that it may be a good time to take profits and invest in undervalued companies. Of the 17 brokers covering Rolls-Royce, four recommend buying, while only one suggests selling. Aarin Chiekrie of Hargreaves Lansdown highlights the company’s plans to enter the market for short-haul narrow-body aircraft as a significant opportunity for growth in the UK.
Investment director at AJ Bell, Russ Mould, notes that while the company’s valuation may not be as attractive as it once was, there are still reasons for investors to remain positive about its future. The company’s success serves as a reminder that the London Stock Exchange has its own share of business champions and can provide significant returns for investors.