Rolls Royce shines in London, 2025 strong growth and target increase
Analysts praise the 'high-quality' accounts of the company, which is now described as 'a money machine'
(Il Sole 24 Ore Radiocor)- Rolls-Royce is riding high on the London Stock Exchange, buoyed by strong 2025 accounts, a multi-year, multi-billion dollar buyback and an upward revision to its outlook. Analysts praise the "high-quality" accounts of the company specialising in engines for the civil and military aerospace, marine and energy sectors, which is now being described as a "money-making machine".
Rolls Royce Holdings posted an adjusted net profit of2.75 billion in 2025, up 37% from the previous year. Adjusted earnings per share increased 46% to 29.55 pence. Adjusted group sales reached 20.06 billion, with organic growth of 14%, which was +2% above expectations. The performance was driven in particular by thePower Systems division, whose revenue increased 19% to 4.9 billion, with adjusted profit of £852 million, 19% above expectations, and by the Civil Aerospace segment, which posted revenue up 15% to 10.4 billion with adjusted profit of 2.13 billion (+41% organic). The Defence segment also posted revenue of EUR 4.8 billion (+8%) with a profit of EUR 689 million (+9%). Power Systems' margin rose 4.5 points to 17.4% and Civil Aerospace's margin improved 3.9 points to 20.5%. The group's operating efficiency improved significantly, with adjusted operating profit of 3.46 billion (+6% over consensus), up 38% organically, bringing the operating margin to 17.3% from 13.8% a year earlier. Free cash flow reached a record level of 3.27 billion (+3% over consensus), up 35% year-on-year.
"Thanks to our new capabilities and approach, we have overcome supply chain and tariff challenges and delivered strong performance in 2025, laying the foundation for significant growth in the years to come," commented CEO Tufan Erginbilgic, quoted in a statement. "Reflecting the strong strategic and financial progress and in line with our capital structure, we restored regular dividends to shareholders in 2025 and completed a £1 billion share buyback. This was the first time Rolls Royce has paid a dividend in more than five years and the first share buy-back in 10 years,' the group points out. The final dividend for the year is 5 pence per share and brings the total coupon to 9.5 pence per share, with a pay-out of 32 per cent. Not only that, 'our strong balance sheet position, together with our new medium-term targets for operating profit and free cash flow, gives us the confidence to announce a multi-year share buy-back programme' of between £7 billion and £9 billion over the period 2026-2028, including £2.5 billion this year. The group expects 'significant further progress' in its performance in 2026, leading management to forecast adjusted operating profit of between £4bn and £4.2bn and free cash flow of between £3.6bn and £3.8bn. The medium-term targets (to 2028) have been increased and now point to an adjusted operating profit of between £4.9bn and £5.2bn (from £3.6bn to £3.9bn) with a margin of 18-20% from 15-17%, and free cash flow of between £5bn and £5.3bn (from £4.2-4.5bn), with a return on capital of 23-26% from 18-21%.
For analysts at AlphaValue the announcements are 'very positive and confirm Rolls-Royce's excellent operating performance, strong earnings momentum and transition to a structurally more profitable business model that generates significant cash flow'. Jefferies reiterated its 'buy' rating on the engine manufacturer, raising its target price to 1,550 pence, calling the results 'high quality'. Analysts point out that Ebit forecasts for 2026 are 11% higher than consensus estimates, while targets for 2028 have been raised. According to Bernstein analysts, Rolls-Royce's new targets for 2026 and 2028 are very robust and should result in significant earnings upgrades. The British engine manufacturer's 2028 guidance update is stronger than expected. "Rolls-Royce continues to benefit from a very strong backdrop across all three of its divisions, coupled with the turnaround underway," the analysts write in a research note. Rolls-Royce has finally become a cash-generating machine, after many decades in which investors had hoped it would deliver strong returns to shareholders, say analysts at J.P. Morgan. According to the US bank's experts, the British engine manufacturer's updated forecasts for 2028 are about 10 per cent above consensus estimates and predict that Rolls-Royce may even increase them over time. The company is benefiting from the resurgence of long-haul travel after the pandemic, increased global defence spending and growing demand for power systems for data centres. Rolls-Royce is also raising prices in all its major divisions, Jp Morgan noted.
