How FTSE 100 giant Rolls-Royce became a ‘true phoenix from the ashes story’ after shares success
If awards were being handed out for the best performer in the FTSE 100 this year, Rolls-Royce would surely be taking home all the top prizes after cementing its position as the index’s darling.
The Derby-headquartered giant started 2024 with a share price of 298p which has since ballooned to a high of 594p, catapulting its valuation past the £50bn for the first time in early December.
The rise is even more remarkable when you consider its share price has rocketed 773 per cent since October 2022.
The London Stock Exchange has been in dire need of good headlines in 2024, as it suffered its biggest exodus since the financial crisis.
But Rolls-Royce has been a rare source of joy for the exchange as it looks like it will continue to be so for the foreseeable future.
Its rising share price has been backed up by Rolls-Royce’s finances – with revenue increasing to £8.86bn in the six months to 30 June, 2024, up from £7.52bn.
For its latest full year, Rolls-Royce reported a revenue of £16.48bn, up from £13.52bn.
In a trading statement issued in November, the FTSE 100 giant said it expects to report an underlying operating profit for 2024 of between £2.1bn and £2.3bn.
Rolls-Royce CEO Tufan Erginbilgiç is ‘basking in all the glory’
According to Dan Coatsworth, investment analyst at AJ Bell, Rolls-Royce’s journey back to the top started with its former boss.
Warren East, who stepped down as chief executive at the end of 2022, “laid the foundations for running a tighter ship” after Rolls-Royce had “disappointed for years on cash flow”.
However, Coatsworth added that it is now his successor, Tufan Erginbilgiç, who is the one “basking in all the glory for this grand turnaround”.
He said: “Rolls-Royce is a true phoenix from the ashes story.
“Upgraded earnings forecasts can be a powerful share price catalyst and analysts have found reason time and time again over the past few years to nudge up their expectations for the British engineer.
“A recovery in the aviation industry has helped. The amount of time planes fly in the sky has a direct impact on the amount Rolls-Royce makes on spares and repairs contracts for a large installed base of aircraft engines. This installed base itself is also growing.
“Airlines are investing heavily to expand their fleet as they add new routes and seek more energy-efficient planes.
“The company’s defence business is benefiting from an improved outlook as countries prioritise military spending thanks to heightened global tensions.
“The new UK government is pro-nuclear power which plays to Rolls-Royce’s strengths as Labour has shown interest in small modular reactors, something the engineer has been developing.
“It has designed a factory-built nuclear power plant that it believes will offer clean, affordable energy ‘for all’.”
Coatsworth adds that it’s understandable why investors may feel they would prefer to hold on to their shares in Rolls-Royce for a little longer as “growth opportunities are big and the company is on a roll”.
He said: “Smashing expectations with its half-year results in August went some way to justifying its premium share rating, but it also means this feat has to be repeated again and again, otherwise investors might take anything less as a reason to bank their profits.”