September has proved a tough month for many UK shares. The FTSE 100 even fell to two-month lows, below 7,000 points, at one stage. However, the Rolls-Royce (LSE: RR) share price has had no such troubles following a string of important updates on international travel restrictions.
Rolls-Royce’s share price has risen 10% so far in September. And at 126.9p per share, the engine builder just closed at its most expensive for six months. Can the stock continue to rise? And should I buy it for my own shares portfolio today?
Being bullish
Here are several reasons why I think the Rolls-Royce share price could continue surging:
- Travel restrictions continue unwinding. The number of Covid-19 cases worldwide continues to grow. But thanks to massive vaccination programmes in large parts of the globe, travel barriers are being taken down. The US is the latest country to dilute restrictions by allowing vaccinated British and EU travellers to enter the country. Ticket sales to the States have subsequently skyrocketed for some airlines. This illustrates the strength of pent-up demand from holidaymakers and business passengers and gives carriers (and plane parts suppliers like Rolls-Royce) something to get excited about.
- Asset sales roll on. Rolls-Royce has a terrific amount of debt on its balance sheet, but it’s making decent progress with asset sales to get this paid down. Its latest sale, the 23.1% stake in AirTanker Holdings (whose fleet of Voyager planes provide refuelling and transport services for the Ministry of Defence) helped the business raise £189m. It’s another significant step in helping Rolls-Royce meet its £2bn divestment target.
- Orders for its green technologies soar. Looking from a long-term perspective, I think the Rolls-Royce share price could rise as it doubles-down on producing low-carbon technologies. The engineer started work on its UltraFan plane engine last year. And from 2023, it hopes the most important engines at its mtu division — which builds power plants for ships, heavy land vehicles, trains, yachts and for energy supply — will all run on sustainable fuels.
Could Rolls-Royce’s share price plummet again?
All that being said, there are still serious risks to Rolls-Royce’s share price right now. First and foremost is any significant surge in Covid-19 cases if virus variants keep emerging. Countries could re-erect travel barriers. As a result, that might ground the aviation industry again and smash the engineer’s service revenues. The number of Covid-19 deaths in the US just topped 1,900 a day for the first time since March.
The airline industry and Rolls-Royce also face a significant threat from rising oil prices. The Brent benchmark has just soared to three-month highs, north of $77 per barrel. And it could keep climbing as supply issues worsen, delivering a further blow to beleaguered airlines’ profits.
All this is particularly concerning given Rolls-Royce’s debt-laden balance sheet. While asset sales are coming on nicely, it still has a lot of hard lifting to do to get its £5bn net debt mountain down.
All things considered, I’d ignore Rolls-Royce today and buy other UK shares instead.
