Investors who hold Roll-Royce shares (LON: RR) ought to feel pretty happy with the company, which in the words of its chief executive is “moving forward with pace and intensity.”
Following a trading update on Thursday, the FTSE 100 aerospace and defense giant’s share price spiked 16% at one point intraday, and ended trading in London on Friday up a whopping 102% on an annualized basis.
That’s after Rolls-Royce declared an underlying profit of £2.5 billion ($3.16 billion), well above market forecasts in the range of £2.1 billion and £2.25 billion. The company’s revenue also exceeded market expectations by around £500 million to £17.8 billion.
Hiked Medium-Term Expectations
Following its upbeat performance, Rolls-Royce upped its medium-term targets for free cash flow and headline profits.
Its underlying operating profit expectation was revised to the range of £3.6 billion and £3.9 billion by 2028, while free cash flow is expected to come in between £4.2 billion and £4.5 billion.
The company is routinely logging higher margins on improved post-pandemic flying hours that are translating into higher profits, alongside a holistic realignment of Rolls-Royce’s business ranging from higher process efficiencies to job cuts commandeered by chief executive Tufan Erginbilgic, who has managed a remarkable turnaround in his first two years in office.
What Can Holders Of Rolls-Royce Shares Expect
As a result, Rolls-Royce shareholders can look forward to reinstated dividends. The blue-chip company proposed a 6p per share dividend on Thursday for investors.
This would mark its first payout to shareholders since before the pandemic. Given Rolls-Royce’s turnaround last year, many in the market, including me, predicted a reinstatement of the dividend in 2025 and it has indeed happened.
But that’s not all. Rolls-Royce also unveiled a £1 billion share buyback program which will commence immediately and be completed through 2025.
As for the share price itself, Roll-Royce stock has near-doubled over the past 12 months. It has also risen almost six-fold over the past two years. That’s pretty neat for investors who took a long position in 2023.
In The Words Of The Chief Executive
In a statement following the publication of the figures, Erginbilgic said Rolls-Royce is moving forward “with pace and intensity.”
The chief executive, widely credited with the turnaround noted further: “Based on our 2025 guidance, we now expect to deliver underlying operating profit and free cash flow within the target ranges set at our Capital Markets Day, two years earlier than planned.
“Significantly improved performance and a stronger balance sheet gives us confidence to reinstate shareholder dividends and announce a £1 billion share buyback in 2025.”
Its obvious that Rolls-Royce has shaken off the turbulence it faced after Erginbilgic, a former BP executive, took on the chief executive’s job in 2023 and offered robust messaging on turning things around.
That message filtered through to his workforce, management and the financial markets bearing solid results for shareholders. While aerospace and defense remains a cyclical sector, both in 2023 and 2024, Rolls-Royce has beaten market expectations.
With air travel now on the up, there may be reasonable grounds for cautiously assuming 2025 won’t be any different for those holding Rolls-Royce shares.
Disclaimer: The author holds shares in Rolls-Royce. The above commentary is meant to stimulate discussion based on the author’s opinion and analysis offered in a personal capacity. It is not solicitation, recommendation or investment advice to trade stocks, futures, options or products. Equity markets can be highly volatile and opinions in the sector may change instantaneously and without notice.