Rolls-Royce CEO expresses belief that the company could attain the highest market value within the United Kingdom.
In an ambitious move, Rolls-Royce, the iconic British engineering company, has vowed to quadruple profits and dramatically fatten margins at its main civil aerospace unit, with the ultimate goal of becoming the largest listed company on the FTSE 100. This ambition, according to CEO Tufan Erginbilgiç, is being achieved through a significant transformation and diversification of its business.
Dominance in the Small Modular Reactor (SMR) Nuclear Energy Sector
Rolls-Royce is positioning itself to lead the emerging market for Small Modular Reactors (SMRs), compact, efficient nuclear reactors expected to be in high demand worldwide by 2050. Each SMR costs about £2.2 billion, and Rolls-Royce’s existing expertise in nuclear submarine reactors underpins their role as a market leader.
Strong Financial Performance and Operational Efficiency
The company's financial performance has been impressive, with a 50% increase in underlying operating profit to £1.7 billion in the first half of 2025, an operating margin of 19.1%, and a 10.8% increase in revenue to over £9 billion. Free cash flow has also improved substantially.
Growth in Aerospace and Power Systems
Rolls-Royce continues to expand in civil aerospace with improved profitability, and in power systems where it serves industrial data centers and government clients. The company's selection as the sole provider for the UK’s first SMR programme underscores its strategic positioning.
Market Valuation and Share Price Growth
Rolls-Royce’s market cap has risen sharply, recently exceeding £90 billion and making it one of the largest FTSE 100 firms, moving up from sixth to fifth in size by market value.
Strategic Deals and Financial Strengthening
Recent deals like a major engine order for Saudi high-speed trains and selling its UK pension fund for £4.3 billion have bolstered financial health, supporting ongoing growth and investment plans.
Despite these successes, Rolls-Royce is not without challenges. Exposure to geopolitical risks affecting aerospace and defense, sensitivity to investor sentiment, and manageable but existing debt levels are all factors that need to be carefully managed.
The Recovery of the Travel Industry and Increased Defence Spending
The recovery of the travel industry has boosted Rolls-Royce's main civil aerospace unit, while increased defence spending in Europe is expected to benefit the company.
Plans for AI Technology and UK's Largest Listed Company
Tufan Erginbilgic believes plans to power AI technology using Rolls' nuclear reactors could help the company become the most valuable stock on the FTSE 100 index. This ambition is a vote of confidence in the London market, according to Susannah Streeter, analyst at Hargreaves Lansdown.
Despite the allure of higher valuations in New York, Tufan Erginbilgic has dismissed the idea of Rolls-Royce switching its listing to New York. The UK's stock market has experienced an exodus of firms, including fintech darling Wise, moving to the US.
However, Rolls-Royce is not immune to the challenges faced by the industry. The company nearly faced destruction during the pandemic due to halted international travel and decreased demand for aeroplane engines. Erginbilgic's leadership and strategic vision have been credited with turning around the company's fortunes since taking the helm in 2023.
Rolls-Royce also has an agreement with the Czech government for nuclear projects, adding to its global reach and potential for growth. The nickname 'Turbo' Tufan, given to Erginbilgic due to the increase in Rolls-Royce's share price, is a testament to the CEO's successful tenure.
In summary, Rolls-Royce’s pathway to becoming the FTSE 100’s largest company is driven by its pivot to nuclear SMRs, solid profit growth, expanded service agreements, and strategic financial management under CEO Erginbilgiç’s multi-year transformation plan.
- Rolls-Royce is not only focusing on its traditional business segments but also venturing into the Small Modular Reactor (SMR) Nuclear Energy Sector, aiming to lead this emerging market by leveraging its expertise in nuclear submarine reactors.
- The financial performance of Rolls-Royce has been commendable, with a significant increase in underlying operating profit and revenue, improved free cash flow, and a rise in market cap, positioning the company as one of the largest firms on the FTSE 100.
