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Investors in Rolls-Royce (LSE:RR) shares have had a torrid time of last year. The stock fell as much as 50% at one point, but managed to recover some of its losses in the second half of the year. With that in mind, I believe these five catalysts can continue to stimulate strong momentum in 2023.
1. Hours of long-distance flying
At FTSE 100 The company receives a lot of revenue from the Civil Aerospace division, mainly from commercial aircraft engine services. These engines are mostly used in long-haul aircraft. Therefore, flying hours were only 65% of pre-pandemic levels when Rolls-Royce last shared its Q3 numbers.
Travel to and from the east has been restricted due to strict Covid measures. However, as airlines begin to resume routes, and China begins to ease travel restrictions, I expect engineers to benefit from flying hours this year.
2. UltraFan progress
In addition, the company’s UltraFan engine test will be conducted soon. The world’s largest commercial aircraft engine is intended to increase fuel burn and provide more thrust. This should help airlines save on operational costs as they use sustainable fuel.
In addition, the technology can be added to older Rolls engines, increasing the potential of the top line. So, more good news on this could help boost Rolls-Royce shares.
3. Energy business continues to grow
Speaking of sustainable fuels, I am most interested in the energy segment of the company. This is because I believe this is a key growth area for the conglomerate in the long term.
Most recently, the manufacturer reported strong growth in the Power Systems segment, where it makes propulsion systems and storage units. Management expects the market to remain strong through 2023. Thus, I believe the unit is well positioned to take advantage of the ongoing energy transition.
In addition, the company is slowly making the small modular reactor (SMR) a reality. Just last month, the producer selected three potential sites for its first plant to make parts for a fleet of nuclear power stations. Therefore, I imagine further progress this year to benefit the Rolls-Royce share price due to the excitement surrounding the project.
4. The new CEO improves the structure
Departing CEO Warren East will be replaced by Tufan Erginbilgic. This step is expected to improve the operational efficiency of the company. ex BP Downstream CEOs are known for their ability to lead strong operational turnarounds.
During his time at BP, Erginbilgic oversaw record profitability. If that performance can be replicated in his new role, I can see investors liking growth stocks.
5. Improve cash flow
Speaking of profitability, this will be the ultimate metric that Erginbilgic investors will follow. After all, the group still has a mountain of debt to deal with. There are no significant debt obligations until 2024. However, Erginbilgic needs to ensure that free cash flow continues to grow in order to increase Rolls-Royce’s share price, and achieve net cash in 2025.
If these innovations and goals continue, I can see myself as a future investor at the right price.
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