Among UK shares, the most popular on the Trading 212 investment site is Rolls-Royce Holdings (LSE:RR.).
Although some of the gloss has been taken off its share price performance in recent months – the aerospace and defence group’s shares are currently (1 June) changing hands for around 7% less than they were in March – many of these investors are probably sitting on some very healthy paper gains.
Why? Well, its shares have risen 13-fold since the end of 2022.
But it’s not necessarily a good idea to follow the crowd. After all, it’s impossible to know how much research these investors have undertaken. With this in mind, are Rolls-Royce shares still worth considering? Let’s delve deeper.
Fingers in many pies
With a widebody aircraft engine division, as well as exposure to the defence and power systems sectors, one of the things I like about the group is its diversified business model.
And it doesn’t appear to have been too badly affected by the conflict in the Middle East. In its first quarter trading update, the group described a “strong start to the year across all three divisions”.
Also, it maintained its 2026 guidance and said the outlook for growth across the group was “highly attractive”.
Large engine flying hours were 115% of 2019 levels, and increasing. In defence, it reported a 20% year-on-year rise in equipment deliveries. And additional demand from data centres and the public sector led to a strong order intake for gas and diesel engines.
Trouble ahead?
Of course, if the current ceasefire in the Gulf doesn’t hold, things could change. The pandemic demonstrated how vulnerable the group is to a downturn in the aviation industry.
And even after the recent pullback in its share price, the group’s stock isn’t particularly cheap. Any sign of a slowdown and there could be a large drop in the company’s market-cap.
However, for the time being, everything looks rosy in the Rolls-Royce garden. And there are a couple of other opportunities that could help it grow further.
More to come?
Firstly, it’s planning to return to the narrowbody aircraft market, probably working alongside an industry partner. Secondly, the group’s developing factory-built mini nuclear power stations, known as small modular reactors (SMRs).
Large-scale nuclear projects are technically challenging and, in this country at least, always seem to run over budget and fall behind schedule. Factory-built plants that are assembled on-site should be cheaper, quicker to fit together, and of uniform quality.
However, there are challenges. According to the Nuclear Energy Agency, there are 127 different SMR designs comprising five cooling methods and over a dozen fuel types. Will the Rolls-Royce version prove to be a winner? Nobody knows for sure.
But if all works as it should, the rewards could be enormous. The global SMR market is forecast to be worth $300bn by 2046. And the group’s boss reckons demand from AI data centres could result in Rolls-Royce becoming the UK’s largest listed company.
Undoubtedly, Rolls-Royce is a British success story and I can see why so many people on the Trading 212 platform (and others) have the stock in their portfolios. In my opinion, it’s a UK share that’s well worth considering.
Should you invest £5,000 in Rolls-Royce Plc right now?
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James Beard owns shares in Rolls-Royce Holdings plc.
