Can Rolls-Royce Holdings (LSE: RR.) pull another expectations-busting set of results out of the bag, and will the share price climb even further? That’s what I was asking when I turned to the aerospace giant’s 2025 results this morning (26 February).
And it’s a big yes on both counts, with the shares spiking up over 6% when the market opened.
And the first big standout was? Up to £2.5bn heading the way of shareholders via share buybacks in 2026. That’s way more than the £1.5bn Sky News earlier suggested was on the cards. And Rolls plans to extend its buybacks to £7bn to £9bn between 2026 and 2028.
What a massive cash cow Rolls-Royce has become under the leadership of CEO Tufan Erginbilgic. It’s a far cry from the struggles of 2020, when it had to borrow big to keep the lights on.
Raised profit guidance
The boss always seems to deliver a pleasant suprise in his results comments, and this was no exception. “Based on our 2026 guidance, we expect to deliver underlying operating profit within the prior mid-term guidance range two years earlier than planned,” he said. A full two years!
He added “Our upgraded mid-term targets include underlying operating profit of £4.9bn-£5.2bn and free cash flow of £5.0bn-£5.3bn.” And beyond that… “significant growth from existing businesses as well as from new business opportunities.“
For 2025, Rolls recorded underlying operating profit of £3,462m, up a huge 40% from the previous year. And that’s with an underlying operating margin that soared from 13.8% to 17.3%.
Free cash flow jumped to £3,270m (up 35%). Rolls-Royce produced a stunning 18.9% return on capital — and I thought the 13.8% in 2024 was impressive.
Can Rolls do it again?
Again I look at a cracking set of results and think it surely can’t go on like this every year — like I thought a year ago. And then, of course, the company goes on to do it yet again. The Rolls-Royce share price is now up more than 1,000% over the past five years. My hat is off to those who put their money down and stayed the course.
But I’m still nervous. A significant part of Rolls-Royce’s profit increases have come through refocus, cost control, efficiency and widening margins. And those things, some day, have to hit their limits.
Valuation is my other main caution. We have a trailing price-to-earnings (P/E) ratio of 47 here. That’s up with Nvidia, the company carrying the world’s AI hopes on its shoulders.
So what next?
The long-term prospects for the Rolls-Royce share price must surely hinge on one key point from the CEO’s comments: “significant growth … from new business opportunities.”
Right now, that looks like small modular reactors (SMRs). And this update said to expect “free cash flow positive by 2030, with strong profit and cash flow growth thereafter.”
Can Rolls pull it off again? I see a good chance it can. But the valuation is too rich for me to jump on.
