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.

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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.

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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.

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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.

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 considered, so you should consider taking independent financial advice.

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