Rolls-Royce shares: a once-in-a-lifetime chance to triple my money

Apart from pandemics, Rolls-Royce (LSE: RR) Shares have not dropped to such a level since 2005. The stock may be 75% of the all-time high, but has risen by 150% over the past two years. So, this is why I bought shares at this unprecedented price to potentially triple the money.

Prospects fly

In the short term, Rolls has received tailwinds from the rebounding travel sector. This is particularly the case with long-haul air travel, where companies derive much of their revenue from long-haul commercial aircraft engine services. As China gradually reopens and relaxes quarantine rules for international travel, I expect flying hours to increase in 2023. Rolls-Royce should benefit from this.

At FTSE 100 The conglomerate also has some promising long-term prospects. This includes its development Ultra Fan engines and small modular reactors (SMRs), which will provide nuclear energy for Britain for decades to come. If successful, British engineers could benefit greatly.

A potential dividend machine

That being said, it will be the medium term that will determine whether Rolls-Royce’s share price can continue to rise. The current balance sheet situation looks bad. Thus, improvement in the level of shareholder equity and debt is badly needed. For this to happen, the company must generate positive free cash flow. I expect Rolls-Royce to get this right when its full year results are released next month.

All eyes will be on the new CEO Tufan Erginbilgic to fix the happy business situation. ex BP Downstream Chief Executives have a reputation for strong change. Investors like me hope that operational improvements continue to raise the manufacturer’s free cash flow.

If Erginbilgic is successful, analysts predict a return to dividend payments as soon as FY24. This will increase interest around the stock, given its past appeal as a passive income generator. In turn, this could see more institutions and investors buy in and push Rolls-Royce’s share price up.

Rating upgrade

To complement the outlook, several investment banks have upgraded their ratings on Rolls-Royce shares. Barclays has rated the stock as ‘overweight’ with a price target of £1.10, and Jefferies recently joined the party as well. Bank of America upgraded the stock’s rating to ‘buy,’ with a price target of £1.25.

The broker sees several positive catalysts for Rolls-Royce in 2023 and beyond. This mainly includes the increase in potential credit and the continued recovery in flight hours, which could benefit the most from the Chinese reopening.

These factors have led me to decide to start a small position in Rolls-Royce if my preferred broker launches UK shares on the platform. After all, several multiples of Rolls-Royce’s current valuation suggest that the current share price is relatively cheap.

The financial situation is not desirable. But I am confident in Erginbilgic’s ability to turn the fortunes of the FTSE stalwart around and eventually steer the share price back to an all-time high.