🚀 Rolls-royce shares have experienced a huge rise! Will it see further success? 🚀
Rolls-Royce Holdings $RR.L-0.3% is a British multinational company known to all as a luxury car manufacturer, but the company also specializes in the production of propulsion systems, especially aircraft engines for the civilian and military sectors .
Rolls-Royce focuses on the development of advanced technologies, including hybrid and electric propulsion, and plays a key role in sustainable aviation and energy solutions, with its engines powering aircraft around the world.
The current market price reflects optimistic earnings growth expectations, which the company has not yet met. Forecasts for the year 2027 forecast earnings per share (EPS) of 25.9 pence, which at today's share price of around 525 pence implies a future price to earnings ratio (P/E) around 20,2. While this is a reasonable ratio for an engineering and technology company, it remains a challenge whether Rolls-Royce can live up to these expectations.
Rolls-Royce
RR.L📊 A challenge that cannot be underestimated
In the 2023financial year Rolls-Royce reported earnings per share of 13.75 pence, which at the current share price equates to a P/E ratio of 38.2. This means the company needs to increase its profits by more than 62 %, which is a difficult task. Rolls-Royce has managed to recover from a deep crisis caused by a pandemic, when it had to raise billions of pounds to survive. So it is clear that the company has both the determination and the ability to cope with challenging situations.
🔋Small Modular Reactors (SMRs)
One of the key factors that could contribute significantly to growth Rolls-Royce, is their diversification into small modular reactors (SMR). These nuclear plants, which are built in factories, have the potential to revolutionise the energy sector. Although the first commercial runs of these reactors are not expected until after 2030, by as early as 2030. 2027 the company could have enough orders or interest to see if SMR will play a key role in the future Rolls-Royce.
According to International Atomic Energy Agency the installed capacity of nuclear power could increase by 2025 by 2025 from the current 371 GW to a staggering 890 GW. With electricity demand growing twice as fast as total energy production, new and efficient ways of generating electricity will have to be found. SMR could be the answer the world is looking for. They have the advantage of smaller size, lower construction costs and faster implementation compared to traditional large nuclear power plants.
📈 Huge potential
If predictions come true, further expansion of nuclear power could require up to 1,500 SMR reactors around the world. At the estimated retail price 1 billion dollars for each of these reactors would be worth Rolls-Royce a market with the potential to reach trillions of dollars. And this is not just about selling the reactors themselves, but also long-term contracts for their maintenance, spare parts supply and operational support.
👥 Competition and challenges on the horizon
Of course, the technology has to prove itself first and there are other strong players in the market. Major competitors include a project in the U.S. Wyoming, backed by well-known investors such as Warren Buffett and Bill Gates. Nevertheless, it has Rolls-Royce has one major advantage - it has behind it 118 years history and a functioning business that can generate the cash needed to develop a nuclear programme.
Rolls-Royce
RR.LHowever, despite all these positive prospects, I think Rolls-Royce shares are expensive. Still, I will be watching to see how the company fares with their SMR program.
What is your opinion of Rolls-Royce and how do you view small modular reactors?