Aarin Chiekrie, equity analyst, Hargreaves Lansdown:
“Rolls-Royce continued its stellar run with another set of high-flying results, leading to a big upgrade to full-year guidance. First-half revenues and profits rose at high double-digit rates, fuelled by strong top-line growth and improving margins across all three divisions. Its Power Systems division continues to benefit from strong data centre demand as customers scramble for power sources while awaiting grid connections. These can often take years, so in the meantime, Rolls-Royce’s on-site power generation systems look well-positioned to benefit over the near-to-medium term.
Despite the Middle East conflict, demand for Rolls-Royce’s aircraft engines hasn’t let up. They’re also spending more time in the skies, leading to increased servicing revenues. This Civil Aerospace division has undergone a major transformation in recent years, with contract renegotiations and component upgrades leading to improved margins and helping convert the increased flying hours into profits. It was a similar story in the Defence business, with orders continuing to flood in as countries across the globe up their defence budgets in response to the elevated threat environment.
The scale of the transformation shouldn’t be overlooked – Rolls-Royce is a very different company from that of the past. The portfolio has been streamlined, operations have become much more efficient, and all three businesses are benefitting from structural growth opportunities, leading to a huge upgrade to full-year profit guidance. Rolls-Royce is developing a growing track record of outperformance, and there looks to be plenty of runway left for further progress.”
The author holds shares in Rolls-Royce.
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