UK investors can’t take their eyes off the Rolls-Royce (LSE: RR) share price, as it’s soared 325% over the last two years. Over the last 12 months, it’s up almost 195%.
No share can maintain this rate of growth forever, and there are signs of a slowdown. It’s still up 12.23% over the last month but nine FTSE 100 shares did better in that time. Two did notably well.
Paper and packaging firm DS Smith (LSE: SMDS) was the FTSE 100’s biggest winner, up a thumping 28%. The shares spiked after the board announced it had agreed to be bought by FTSE 100 rival Mondi for around 373p per share.
Paper tigers show their teeth
Now we have the prospect of a bidding war with DS Smith also in talks with New York-listed International Paper, which is offering around 415p. As I write this, the shares trade at 408.8p.
International Paper has until 23 April to firm up its intentions but I won’t do anything aside from watch with detached interest. Personally, I never buy on takeover speculation. All too often, it comes to nought, and the spike turns into a dip. Plus I already have exposure to the packaging sector via Smurfit Kappa Group.
The month’s second-best performer is Chile-based Antofagasta (LSE: ANTO), up 23.43%. This is no flash in the pan, as the copper miner’s share price is up 47.3% over one year, and 121% over five.
Antofagasta has benefitted from the rising copper price, which has jumped 7.9% in the last month on hopes of a Chinese recovery. In February, it reported solid 8% growth in 2023 revenue and underlying earnings to $6.3bn and $3.1bn respectively.
The risk is that the global economy slows as Middle East tensions spread and the rising oil price revives inflation. That would hit demand for copper. But my biggest concern is that Antofagasta now trades at 38.58 times trailing earnings. That’s too pricey for me.
A top stock but pricey
Rolls-Royce shares aren’t particularly cheap, either, trading at 30.47 times earnings. That’s hardly surprising, given how well they’ve done. I stupidly banked my 187% gain last summer, only to see the share price double since.
I remain optimistic as the good news keeps flowing. Last month, Rolls-Royce announced it would invest £55m to meet increased demand for its large civil aircraft engines. Sales are expected to climb 40% from 2025.
2023 was a brilliant year for the company. Underlying operating profit soared 144% to £1.6bn with free cash flow up 155% to a record £1.3bn. It expects profits to climb to between £1.7bn and £2bn in 2024, with free cash flow from £1.7bn to £1.9bn. The turnaround is stunning but I’m wary of buying Rolls-Royce today.
I’m concerned that early success will go to CEO Tufan Erginbilgic’s head. His aggressive drive to hike prices has scared off long-standing customer Thai Airways. A lot of excitement is baked in but investors will punish Rolls if it doesn’t deliver.
I’m still keen to restore Rolls-Royce to my portfolio though, and plan to buy on short term weakness. But I won’t bother with DS Smith and Antofagasta.
