RBC Capital looks a little late to the party with the share price up 83% year-to-date, backed by increased defence budgets and a renewed focus on power generation. But, undeterred, the Canadian bank still believes there's a lot to commend Rolls-Royce Holdings PLC (LSE:RR.) and its investment credentials.
In an initiation, the bank plants an outperform rating on the shares with a 1,275p price target.
The argument is simple enough: the hard work of the turnaround is largely behind Rolls and the business now has enough operating and financial momentum to justify a fresh look.
RBC’s analysts describe the past decade of engine durability problems, thin cashflow and a bruising pandemic before noting the shift since 2023, when Tufan Erginbilgic became chief executive.
Operating performance has stabilised, cash generation has risen fivefold between 2022 and 2024 and Rolls has built a habit of beating and raising expectations.
The bank still expects that pattern to continue, although it concedes the upside is now less dramatic because consensus forecasts already run ahead of management’s 2028 targets.
The heart of the pitch is widebody engines. Narrowbody jets may dominate headlines, but RBC argues the gap in long-term growth between the two markets is small.
Its own cashflow model values Rolls’s existing widebody portfolio, including engines such as the Trent XWB, Trent 1000 and Trent 7000, at £68 billion net present value, or roughly 70% of the current market capitalisation.
Widebody engines form a duopoly with GE, and Rolls is sole supplier on three of its four major programmes. That leaves the business in what the bank calls a cash harvesting phase, with little need for heavy investment until a new widebody platform emerges in the 2040s.
The rest of the group receives similar attention. Power Systems, which supplies engines and generators for datacentres, military vehicles and marine uses, is expected to grow at about 10% a year.
Defence and business jets add steadier support. None of this includes potential upside from the Ultrafan, Rolls’s next-generation engine, or from its Small Modular Reactor business, which together could add about 400p of value.
For now, though, RBC’s view rests on the present rather than the distant future. It sees a business that has found its footing, generates cash and holds solid positions in markets that should grow reliably.