Rolls-Royce Holdings PLC (LSE:RR.) shares continued their surging run on Thursday, notching a new all-time high above 1,080p on the back of a strong set of results that suggested mid-term guidance would soon need to be upgraded.
Operating margins rose to 19% in the first half of the year, up from 14% a year ago, driven by strength in Civil Aerospace aftermarket services, helping lift operating profit for the engine maker 50% to £1.73 billion.
The company raised its full-year EBIT guidance by 12.5% to a range of £3.1-3.2 billion, with free cash flow now guided between £3.0-3.1 billion.
Free cash flow also beat his expectations by around 40% and was accompanied by a big interim dividend.
These were "extremely strong" numbers, around a third better than consensus profit forecasts, said analyst Nick Cunningham at Agency Partners, noting that this was driven mainly by the strong Civil aftermarket performance, alongside a strong performance from Power.
Shore Capital's Jamie Murray also says the results are "excellent", with all key metrics beating expectations, with Civil Aerospace aftermarket driving group operating margins to 19%, up from 14% last year.
"Whilst mid-term targets were reiterated, we believe it is inevitable they will be raised in due course," Murray said, with 2028 EBIT margin guidance of around 16% looking "increasingly conservative in light of today’s numbers".
The City, himself included, "continues to underestimate the magnitude of the turnaround," said Murray.
"Whilst the valuation remains elevated versus historical levels," he added, with Rolls trading on at 24 times on an EV/EBIT multiple and a 5% free cash flow yield, "today’s performance more than justifies the premium".
UBS analyst Ian Douglas-Pennant also said the interim dividend of 4.5p far exceeded its 3p forecast, too.
While the company maintained its 2028 targets, UBS said all three divisions already delivered margins within the guidance range (excluding one-offs), and it believes analysts and investors will question the apparent conservatism in both 2025 and 2028 guidance.
"Whilst the new guidance may be in line with investor expectations, we believe it will be taken as conservative, and consensus is likely to upgrade 2028 and long-term estimates in response to this print."
AJ Bell's Russ Mould said Rolls-Royce was "showing no signs of taking its foot off the pedal", with the share price having increased by 1,442% since October 2022, meaning investors who held that entire time have made more than 15 times their money.
"Rolls-Royce is the poster child for what’s capable on the stock market," he said.
"While Chancellor Rachel Reeves is keen for more people to invest and make a better return than cash, even she wouldn’t expect investors to always make Rolls-Royce kind of returns.
"But the gains from holding Rolls-Royce show that big returns aren’t simply a fantasy on the UK market. It’s also a welcome reminder that Britain has plenty of business champions, with Rolls-Royce the cream of the crop."