Rolls Royce: Boom in defence spending leads to dramatic share price gains
Rolls-Royce will report back on the latest steps in its impressive turnaround on Thursday as a boom in defence spending has helped propel the stock to record highs in 2025.
The group hiked its earnings outlook in July after seeing strong demand for engines offset supply chain challenges and tariff woes.
Half-year underlying operating profits jumped by 50 per cent to £1.7bn for the first half of 2025, helping it raise its full-year forecast to between £3.1bn and £3.2bn.
It marked a significant upgrade after previously pointing towards profits between £2.7bn and £2.9bn.
Rolls, which makes engines used in large Boeing and Airbus planes, said it was supported by a strong performance in its large engines business, as well as margin improvements on contracts.
Its performance is set against a backdrop of higher global defence spending because of the uncertain geopolitical environment, as well as a revival in international travel since the pandemic.
While its second-half profit performance is not expected to be quite as strong as the first, Thursday’s update is likely to show continued success in the long-term transformation plan first laid out by the company in 2023.
Victoria Scholar, head of investment at interactive investor, said Rolls-Royce has been a “standout stock market winner, rallying around 100 per cent so far this year”.
She said: “Despite supply chain and Trump tariffs headwinds facing the sector, Rolls-Royce shares continue to fly.
“Chief executive Tufan Erginbilgic, who took to the helm in January 2023, has spearheaded nothing short of a miraculous recovery at the previously unloved company.
“The former longstanding BP executive has defied the odds, bringing about this remarkable corporate transformation, by cutting unnecessary costs, investing heavily in improving engines and embracing a digital transformation.”
Alongside the financials, focus will rest on plans for the firm’s small modular reactor business after speculation over the summer that Rolls was planning to spin off the division, which it quickly denied.
Rolls said instead there had been talks with investment banks about future funding plans for that part of the business, which is set to be profitable by 2030 and start generating revenues by the end of 2025.
Michael Hewson at MCH Market Insights said a stock market spin-off of SMR would “be a strange decision to make unless Rolls-Royce were able to retain a good chunk of the business”.