Up 1,000% in 5 years,UK government could send Rolls-Royce higherOver the past five years, Rolls-Royce (LSE: RR) shares have delivered a remarkable return of exactly 1,000%, according to my data provider. There’s something almost poetic about that perfectly round figure. However, the FTSE 100 stock has lost some of its momentum recently, declining 18% since the beginning of March. This pullback can be attributed to several factors, including rising jet fuel costs, the cancellation of various flight routes, and cautious forward guidance from GE Aerospace, a key rival in the widebody engine market.
Annual general meeting on the horizon
Arguably, what the share price needs right now is a positive catalyst. Rolls-Royce is set to hold its annual general meeting (AGM) tomorrow (30 April), and it’s possible that the company will issue a trading update confirming whether its full-year guidance remains on track — or not. Following that, the next major catalyst is likely to be the half-year report, due in late July. Historically, the stock has seen significant movement after interim results, mostly to the upside in recent years.
As a reminder, the company has guided for full-year underlying operating profit of £4bn to £4.2bn, and free cash flow of £3.6bn to £3.8bn. Rolls-Royce has built a reputation for setting ambitious targets and then comfortably exceeding them. But that may be becoming more difficult given the current challenging environment, which includes restricted airspace and a rising number of cancelled flights.
SMRs represent a massive opportunity
Clearly, the near-term outlook is tricky, and that adds a layer of risk. Nevertheless, as a shareholder who is more focused on the next decade than on the next few months, I remain very bullish — particularly when it comes to small modular reactors (SMRs), or mini nuclear reactors as they’re sometimes called. If Rolls-Royce succeeds in becoming a global leader in this field, as it expects to, the opportunity could be enormous. Just how large are we talking? The International Energy Agency (IEA) projects that total SMR capacity could reach 120 gigawatts by 2050, with more than 1,000 SMRs deployed globally. Cumulative investment in this space could top $670 billion by 2050 under the IEA’s more bullish scenario. Even the base case is substantial, with SMR capacity reaching 40 GW. CEO Tufan Erginbilgic estimates as many as 400 SMRs could be in operation by 2050. Whichever forecast you prefer, this is clearly a high-growth market. Each unit is reportedly expected to cost between £2bn and £3bn, though it’s worth noting that the technology has yet to prove it can operate at scale.
Government support building
It was therefore encouraging to read last week that UK government officials have been travelling across Europe to drum up business for Rolls-Royce’s SMR technology. According to The Telegraph, Business Secretary Peter Kyle has been holding discussions with Sweden and other European allies. Rolls-Royce SMR has already signed contracts with the UK and the Czech Republic to build mini nuclear reactors. In doing so, it has become the only company with multiple contractual commitments to deliver SMR units in Europe. To be fair, Rolls is already a finalist in Sweden alongside GE Vernova to supply its SMR technology to state-owned energy giant Vattenfall. But there is now talk that Germany is also considering SMRs as a way to strengthen its energy independence, particularly in response to expected energy market disruptions in 2026. If Rolls-Royce SMR can secure orders from other major European nations — especially Germany — the share price could receive a meaningful boost.
A dip-buying opportunity?
Even after its 18% decline, the stock is far from cheap. The forward earnings multiple currently stands at 29. However, for investors who are willing to look beyond the near-term uncertainties and focus on the longer-term potential — particularly in the SMR space — I believe Rolls-Royce is well worth a closer look.
Long
