If Tufan Erginbilgiç could do for the England football team what he’s done for the Rolls-Royce (LSE: RR) share price, we’d win the Euros at a canter.
The turnaround since he was appointed CEO on 1 January 2023 – less than 18 months ago – is nothing short of astonishing. Rolls-Royce shares closed at the end of December 2022 at 93.2p. Today, I’d have to pay 475p to buy them. That’s a staggering 415% return. It would have turned a £10,000 investment into £51,462.
Admittedly, it’s not quite as good as chipmaker Nvidia. Its shares have rocketed 795% over the same period, turning £10k into £89,500. It’s still pretty fine, though. The big question is: can Erginbilgiç keep it going?
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FTSE 100 recovery star
Everything I’ve read about the man suggests he has the grit and will to do so. When he took over, Rolls-Royce had lost 75% of its share value, after being hit by one problem after another. Today, it’s no longer a burning platform, but a booming one.
However, the Rolls-Royce share price and Erginbilgiç’s reputation aren’t the only things riding high today. So are investor expectations, and the company’s valuation. The shares trade now at 35.3 times trailing earnings. That is getting on towards three times the FTSE 100 average of 12.7 times.
Yet the share price continues to climb, up another 11.15% in the last month. Over one year, it’s soared 209.24%. The rate of ascent is slowing, but broker Citi has just lifted its target price to 555p. That’s up 17% from today.
It reckons “positive sentiment” will continue to drive the rerating, which is one of the things that worries me. Sentiment is positively giddy. The mildest earnings miss could bring it back to reality with a bump.
Yes, Citi says the wide-body engine aircraft engine demand and hopes of a reinstated dividend justify its new target price. No doubt we will all be watching like hawks when Rolls-Royce delivers its first-half results on 1 August.
I can’t buy it today
The outlook seems bright, with 2023 sales of £16.49bn forecast to hit £16.82bn in 2024 and £18.2bn in 2025.
The spectre of debt hung over Rolls-Royce for years. Yet it fell from £3.3bn in 2022 to £2bn in 2023, and is forecast to collapse to just £270m in 2024. In 2025, the group will boast a net cash position of £1.9bn.
Investors have totally bought into Erginbilgiç. Yet as his early shock doctrine wears off, growing the business could get harder. Being a boss only gets harder. Just ask Gareth Southgate.
We’ll know more when next month’s results are in. I can’t see a major bounce – just how much good news can one company deliver?
We are reaching peak Rolls-Royce and peak Erginbilgiç, too. I’m looking elsewhere for the next big FTSE 100 turnaround play. Sadly, it probably won’t be nearly as massive as this one.
