Tufan Erginbilgiç stepped into the role of chief executive at Rolls-Royce at the beginning of 2023, just after the company’s share price hit a low point. His signing-on deal included shares worth £7.5 million, set at a price of 91 pence each. Fast forward to now, Rolls-Royce’s share price has climbed to 732 pence, thanks particularly to a very positive report about the company’s performance, which reflected a 16% rise in the stock. This impressive increase means that the value of Erginbilgiç’s initial stock package has ballooned to around £60 million, a remarkable sum after just a little over two years in his position.
While he cannot actually take ownership of these shares until 2027 and 2028, it appears highly unlikely that any significant downturn, like another pandemic worse than COVID, will occur to undermine the current gains. The yearly financial results surpassed even the most optimistic expectations from analysts.
Rolls-Royce stated that it will achieve its profit targets for 2027 two years earlier than projected and has set even higher revenue forecasts for 2028, predicting a jump from between £2.7 billion to £2.9 billion this year up to between £3.6 billion and £3.9 billion in 2028. What’s more, Erginbilgiç proclaimed that these targets are just milestones rather than final goals, indicating that the company plans to keep pushing forward.
Despite this positive outlook, some financial analysts remain skeptical, claiming that the speed of Rolls-Royce’s recovery might be misleading. They argue that favorable movements in currency, a strong revival in the aviation sector since COVID, and delays in aircraft deliveries have helped the company renegotiate contracts with airlines and suppliers.
Erginbilgiç responds firmly to critics who may view these contract improvements as easily won victories. He believes that if critics had attended the negotiations, their opinions would change. This makes sense, as Rolls-Royce has developed a strong ability to generate cash, something they struggled with for nearly two decades before the pandemic severely impacted their revenue. They had to borrow significantly to survive during the pandemic but have managed to eliminate their debt and are now able to buy back shares worth £1 billion. They expect to generate between £4.2 billion and £4.5 billion in cash by 2028, and given the stable nature of their business contracts, these projections seem solid.
When it comes to growth prospects beyond the mid-term, Rolls-Royce is positioned well in several areas. The development of small modular nuclear reactors is likely to get the green light soon. Their power systems division is set to gain new clients, particularly data centers. The defense sector stands to benefit from partnerships such as the Aukus submarine collaboration, alongside increased military spending from governments. Additionally, Rolls-Royce may return to producing engines for narrow-body airplanes in the 2030s, having previously focused only on wide-body jets.
These new business areas will require significant investment, and there is a risk that funds could be spent inefficiently or that the company might fail to secure the right partnerships. However, those issues are for the future. For now, it’s clear that the impressive turnaround at Rolls-Royce seems authentic. Just four and a half years ago, the company was nearly bankrupt, requiring a £2 billion emergency fundraising. Now, it boasts a market value of £62 billion, ranking as the eighth largest company in the FTSE 100 index.