At 108p, is now a good time to buy Rolls-Royce shares?

It’s been a rough three years Rolls-Royce (LSE:RR.) shares. After the pandemic, the engineering group saw its aerospace division collapse, prompting a major restructuring to cut costs. These include the termination of 9,000 employees, the disposal of non-core businesses to pay off £2bn of debt, and now a change in leadership.

With the latest trading update showing signs of recovery, is it finally time to consider this company for my investment portfolio? Let’s take a closer look.

Get your finances back

As challenging as the mass redundancies were, the decision ultimately led to annual cost savings of £1.3bn. This, combined with the results from the sale of the non-core business mentioned earlier, has certainly repaired some of the cracks in the company’s balance sheet.

As at 31 October 2022, the company has around £2bn in cash with access to £5.5bn more from creditors. The debt balance is still huge, at £4bn. But the good news is that everything is fixed. Therefore, the increase in interest rates does not put pressure on existing loans. And with only £1.2bn of value maturing before the end of 2025, management has some breathing room.

The civil aviation division continued to report increased flying hours, returning to 65% of 2019 levels, with expectations for a rapid recovery if the travel sector in Asia improves. Meanwhile, the defense and power systems divisions seem to be firing on all cylinders with new contracts and a strong order book.

Needless to say, this all sounds quite positive for Rolls-Royce shares.

Change the leader

Despite revealing the company’s turnaround strategy, CEO Warren East did not. In fact, since the beginning of 2023, the corner office is now occupied by Tufan Erginbilgic, and he has a brutal message to his employees about the state of business: “Every investment we make, we destroy the value…

Obviously, that’s not what shareholders or employees want. So should investors avoid Rolls-Royce shares? Well, not necessarily.

In my experience, new leaders often share all the problems – after all, they are not in charge. He gets a lot of kudos as business recovers naturally. In other words, under-promise and over-deliver.

Whether Erginbilgic can transform the business remains to be seen. He has a background in the energy sector, which bodes well for the company’s mini nuclear reactor business. But whether that will be enough to manage the aerospace and defense divisions effectively, only time will tell.

Time to buy Rolls-Royce stock?

Personally, I am always wary of new leaders. There are many examples of CEOs coming in with great new plans only to make the business worse and then exit.

Good finances are an encouraging sign. And I am optimistic that the worst is now far behind. But a lot of work still needs to be done to restore Rolls-Royce Shares to its former glory. Therefore, even at 108p, I keep the company on my watch list for now.