It seems hardly any time ago that Rolls-Royce Holdings (LSE: RR.) shares were down below 100p. Now they’re over 200p, and the mood is bullish.
How much further can they rise by the end of the year?
I see a few trends that I think could give them a boost to over 300p. Let me explain.
Inflation and interest rates
UK inflation continue to ease. For July, the rate of price rises fell to 6.8% year on year. That’s down from 7.9% in June, and part of a steady down trend since early 2023.
Inflation drives interest rates, and the Bank of England base rate has soared to 5.25%. How much higher it might go is anybody’s guess. But a few analysts suggest we could see it top out with one more hike to 5.5%.
Both of these are hurting our pockets, and making it harder to go on holiday. But, peak inflation has hopefully passed.
And if it looks like interest rates have peaked, confidence in Rolls-Royce shares could rise. Even better if rates start to fall by the end of the year.
Debt and credit rating
Debt can be a big killer, and Rolls-Royce has done well with it since the worst days of the 2020 stock market crash.
With interim results delivered in early August, Rolls revealed net debt of £2.85bn at 30 June. That was down from £3.25bn at 31 December. And I reckon that’s good going.
How quickly it will fall in the future is hard to say. But the results update did say: “We remain committed to returning to an investment grade credit rating“.
I think credit rating can be overlooked. And it is something that drives confidence with the big investors.
Any further credit rating progress could, I think, have more effect on Rolls-Royce shares than the level of debt itself.
Price targets
Broker forecasts can be double-edged. Sometimes they seem to be behind the times and out of date.
But they can be influential. And there’s something that I think can have more impact than maybe it should. I’m thinking of price targets.
UBS has just set an upside price target as high as 600p. Now, that’s if everything goes well, and Rolls beats the guidance it gave at the interim stage. And it’s longer term, not for 2023.
Others, however, don’t rate Rolls shares as high. But all year, brokers have been steadily raising their targets. If that continues, it might also help lift the price above 300p.
No prediction
Now, I’m not making a prediction here. Also, I haven’t even looked at engine flying hours, profit, cash flow, or any of the fundamentals that drive share prices in the long term.
And if Rolls fails to beat even short-term expectations, the mood could turn sour.
But I do think the Rolls-Royce board has its priorities in line. And I am seeing a lot of the right things coming together.
