Can the Rolls-Royce share price climb back above 100p?

Currently trading at 91p, can the Rolls-Royce share price climb out of penny stock status? Dylan Hood takes a closer look.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Rolls-Royce (LSE: RR) share price was decimated by the pandemic, sinking to a low in October 2020 of just 38p. Things seemed to be picking up for the aerospace firm towards the tail end of 2021, but the last few months have reversed this trajectory. In fact, the shares are down over 27% year-to-date and over 10% in the last 12 months.

As global travel restrictions continue to ease, can the Rolls-Royce share price climb back above 100p? Or will the risks outweigh the opportunities? Let’s take a closer look.

Reasons to be cheerful 

As Covid-19-related restrictions ease around the world, flight numbers have increased dramatically. In March, there were 648,218 confirmed flights in Europe. This figure is over double the 308,210 flights in the same period in 2021. These increased numbers are a huge positive for the firm as it’s paid per flying hour for aircraft that use Rolls-Royce engines. It also makes a sizeable sum from servicing these same engines, which is also positively correlated to flight hours.

Rolls-Royce has started to develop technology in the nuclear energy sector too. It’s developing small modular reactors (SMRs) that are a fraction of the size of traditional nuclear plants. The programme seems to be making great progress, having received funding from the Qatari government and the UK’s Energy Security Strategy Programme, which has committed £2bn to it. If Rolls can deliver on this scheme, it could become a frontrunner in the nuclear field for years to come. This would undoubtedly help its share price.

To complement this, it also won a US Air Force contract to provide engine replacements for B-52 bombers. This programme could be worth up to $2.6bn to it if all engines are used. This is more vital business that I think could help push the Rolls-Royce share price higher.

Not out of the woods yet

Although there are a number of factors that could benefit the Roll-Royce share price, there are still some big risks ahead. The tragic Russia-Ukraine conflict has cut off a number of air routes and has also catalysed increasing airline fuel prices. Rising airline costs could push consumer prices up and reduce demand, which would also indirectly affect Rolls’ business.

And the firm has a huge amount of debt on its balance sheet at present – over £6bn to be exact. While no debts are due to be paid until 2024, interest rates are rising rapidly and by 2024 they could be much higher than they are now. This could vastly increase the amount of money Rolls has to pay to service its debt.

Rolls-Royce share price: the verdict

While Rolls has to face increased interest rates and Russia-Ukraine-related risks, I think the opportunities it has ahead of it could outweigh these in the long run. However, in the short-to-medium term, I think the shares will struggle to break the 100p barrier. That being said, I think the current price offers some great value and as such, I would consider buying the shares as I eye long-term growth for my portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »