Rolls-Royce lines up a mammoth £1.5bn share buyback!
It’s a big week for Rolls-Royce (LSE:RR) shareholders. On Thursday (26 February), the flying Footsie engine maker will report its full-year 2025 results.
The market appears to be expecting good things, with the stock up nearly 15% year to date. This means it has returned more than 1,000% in just three years!
Behold the share price chart, a thing of beauty.
Speculation has been rife about what we might learn on Thursday, but Sky News let one cat out of the bag by reporting that Rolls-Royce is set to announce a new share buyback worth up to £1.5bn.
That would surpass last year’s £1bn buyback, which Rolls topped up with another £200m programme later in the year. The new buyback will be announced alongside the final dividend, say the reports.
Bear in mind that the company hadn’t launched a buyback since 2014. But now it looks set to have repurchased nearly £3bn worth by this time next year. This will help trim the share count, which ballooned during Covid when the firm teetered on the brink of bankruptcy.
Things to look out for
What other rabbits might CEO Tufan Erginbilgic pull out of the hat? Well, the dividend should be hiked substantially — around 50%, according to my data provider. Mind you, even that would still put the dividend yield at less than 1%.
The company previously guided for an underlying operating profit between £3.1bn and £3.2bn, and a similar amount of free cash flow. My suspicion is that the engine maker will beat those targets, but then the market already thinks this too, with the share price not far off an all-time high.
A figure Iâll be keeping an eye on is large engine flying hours. As of late 2025, theyâd reached 109% of pre-pandemic (2019) levels. Shareholders will want to hear this is set to edge up further.
Another thing I’ll want to hear more about is small modular reactors (SMRs). After being selected as the preferred bidder for the UK’s first mini-nukes, the firm’s SMR subsidiary has been busy building the supply chain.
A deal has been signed with Japan’s Yokogawa Electric Corporation to develop the main control system for the programme. Construction management firm Amentum has also been brought in.
We should also get some commentary on the ongoing global supply chain challenges. If there’s any deterioration with things here, the share price could pull back sharply, especially as management has been handling this situation deftly so far.
Guidance is key
Now, it should be remembered that the stock price will likely move based on the 2026 outlook. Shareholders will obviously be hoping that management guides above the current market consensus.
For context, that’s for revenue growth of 10% (£21.7bn), and a 14% increase in earnings per share. Free cash flow is expected to be at least £3.5bn for the year.
Finally, investors should be aware of the stock’s valuation here, as the forward price-to-earnings multiple has now crept above 40. That’s the sort of valuation normally reserved for a high-growth tech stock.
Of course, there’s nothing to stop the share price exploding even higher if the numbers and guidance are very strong. However, with the valuation where it is today, I won’t be adding to my position yet.
All eyes peeled for Thursday…
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Ben McPoland has positions in Rolls-Royce Plc. The Motley Fool UK has recommended Rolls-Royce Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
