Rolls-Royce shareholders have witnessed a remarkable turnaround in the British engineering giant’s fortunes under the stewardship of CEO Tufan Erginbilgic, who took charge at the start of 2023. Once described by Erginbilgic as a “burning platform,” the 119-year-old company’s shares have soared, reaching record highs above 1,100p, valuing the firm at approximately £93.5 billion and placing it among the top five companies listed on the London Stock Exchange. This surge represents an 85% increase year-to-date and an extraordinary elevenfold rise since Erginbilgic assumed his role when shares were priced at just 93.2p. An investor who backed Rolls-Royce at the start of this revival would now hold a stake worth over £11,000 for every £1,000 invested. Notably, the company has resumed dividend payments for the first time since 2020, planning to distribute £1.9 billion to shareholders this year.

Rolls-Royce’s impressive performance is largely underpinned by a rebound in the aviation sector. The group, which manufactures and services engines for commercial aircraft makers such as Boeing and Airbus, has benefited from the recovery in global air travel following the pandemic slump. The worldwide surge in flights means increased demand for engine maintenance and new engines, generating robust revenue growth. The company’s first-half 2025 results were compelling, with underlying operating profit climbing nearly 50% to £1.7 billion, and revenue rising 11% to over £9 billion. Operating margins improved significantly, rising from 14% to 19.1%. Rolls-Royce also raised its full-year operating profit forecast by £300 million, now expecting up to £3.2 billion, with free cash flow guidance increased to £3.1 billion. This positive outlook has driven shares even higher, with the company noted as the best performance on the FTSE 100 in the past two years.

The transformation pursued by Erginbilgic includes substantial restructuring and enhanced operational efficiencies. Cost-cutting measures, including the reduction of around 2,500 jobs in 2023 (approximately 6% of the workforce), have helped improve margins. Additionally, Rolls-Royce has focused on improving the durability and maintenance profitability of its Trent engines, aiming for an 80% improvement in “time-on-wing” by 2027 – meaning engines can stay in service longer between overhauls, directly boosting profitability. The company’s defense and power systems divisions have also contributed to growth, with Rolls-Royce supplying engines for military aircraft such as the Eurofighter Typhoon and F35, and building nuclear reactors for Royal Navy submarines. Increased European defense spending amid global tensions and a government contract to develop the UK’s first mini nuclear reactors have provided further support to the group’s diversified portfolio.

Investor sentiment remains bullish, though tempered with caution. Leading analysts commend Rolls-Royce as a “standout stock market winner,” but some advise prudence given the steep share price gains. Victoria Scholar, head of investment at Interactive Investor, suggests that while the extraordinary rally might make buying now less attractive for value investors, trend followers could see further upside. Some investors may consider locking in profits and diversifying into more undervalued opportunities elsewhere. Broker consensus is largely positive: among 17 brokers covering the firm, four rate the stock as a “strong buy,” eight recommend “buy,” four suggest holding, and only one recommends selling.

Looking ahead, Rolls-Royce’s focus on innovation and market expansion, especially its planned return to servicing short-haul narrow-body aircraft — a major growth opportunity projected over the next five decades — provides further optimism. Experts like Chris Beauchamp from IG believe the recent re-rating of the stock is likely to continue, supported by an established track record of exceeding targets. Conversely, critics such as Russ Mould from AJ Bell caution that the company’s valuation is no longer the bargain it once was, which may deter new investors. Still, the clear message is that Rolls-Royce’s strong earnings performance and upgraded guidance have invigorated the UK stock market, which has faced challenges retaining high-growth, blue-chip companies.

Rolls-Royce’s resurgence is seen by many as a testament to the potential for significant returns on the London market, countering narratives of capital flight to New York and elsewhere. The company embodies a broader message that the UK continues to nurture world-class industrial champions capable of generating substantial investor value, a point underscored by renewed enthusiasm across the aerospace and defence sectors and celebrated as a vindication of Erginbilgic’s turnaround strategy.

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Source: Noah Wire Services