Rolls-Royce makes £1 billion more profit after major defence orders

Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: “Rolls-Royce delivered a blockbuster set of results, with full-year profits flying past expectations largely due to a much better-than-expected performance from its Power Systems division.

“Here, growth continues to be driven by data centre customers looking for power while awaiting grid connection.

“As upgrades to grid infrastructure are expected to take years, Rolls-Royce’s on-site power generation systems are well-positioned to benefit from sustained demand over the medium term.

“Strong demand in its Civil Aerospace business remains a running theme.

“The division’s 15 per cent revenue growth continues to be boosted by the upward trend in large engine flying hours, which are now cruising at 111 per cent of pre-pandemic levels.

“Rolls also has exposure to the defence sector, making up around 25 per cent of group revenue.

“Given the current elevated-threat environment, defence budgets across many countries are on the rise.

“With positions in combat aircraft and nuclear submarines, Rolls-Royce looks well-placed to capture some of the increased spending.

“The extremely strong performance has led Rolls-Royce to raise its medium-term targets well beyond market expectations.

“The top end of guidance points to 50 per cent growth in underlying operating profits by 2028, but with Rolls’ growing track record of outperformance, there’s a good chance this outlook gets nudged higher in the coming years.

“Given the group’s much-improved financial position, a three-year £7-9 billion share buyback programme was also announced.

“Again, this was well ahead of the £1.5 billion buyback that media reports had been speculating about in recent days.”