Will the Rolls-Royce share price sink below 100p in 2023?

At Rolls-Royce (LSE: RR.) share price has staged an impressive rally over the past few months, skyrocketing 64% from the October low.

With the big overhaul planned by the new CEO Tufan Erginbilgic, the general meeting can continue or will be in FTSE 100 aerospace and defense companies back into penny stock territory?

Here are my views on business prospects.

Big challenges ahead

Erginbilgic is not immune to the difficulties faced by Rolls-Royce. In the global address for staff, the former BP executives described the company as “burning platform“. He is very critical of the current situation the company is in.

Every investment we make, we undermine the value…we don’t do every major competitor out there.

Tufan Erginbilgic, January 27, 2023

Although it is arguably less of a pressing challenge than it was before, Rolls-Royce still has a £4bn drawn mountain of debt. Further efficiency savings and potential job cuts are on the cards to give investors confidence.

In this regard, I think the company is headed in the right direction. However, it is a long and difficult road to repair the balance sheet. Any sign that Rolls-Royce is struggling to control debt could send the share price plunging below 100p this year.

Furthermore, according to former CEO Warren East, the new successful test run of the aircraft on hydrogen, conducted in partnership with easyJetmay not be the silver bullet for the company’s problems.

Timur has warned that technological efforts in this space are not advanced. There is a risk that investors may be too optimistic about the effect this will have on Rolls-Royce shares.

A reason to be cheerful

Despite the challenges, I found it very easy to read Erginbilgic’s comments. There is an incentive to make a mark as the new leader of the group and eliminate room for complacency among employees.

Indeed, there are tailwinds that could lift the stock price higher. For example, demand for civil aviation continues to recover. China’s relaxation of its ‘zero Covid’ policy bodes well for the sector, which accounts for 41% of Rolls’ underlying earnings.

In addition, the company received 7% of the total R&D investment made by the UK government last year. The country’s innovation agency has given Rolls-Royce a total of £689m over the past two decades. Surprisingly, it is more than four times the amount received by other companies.

A couple of public investments with the company’s leading role in delivering small modular reactors to meet Britain’s energy needs, and it is clear that Rolls-Royce is seen as a strategic UK asset. Such clothes are important. It can help maintain the stock price, if the business can speed up its operations.

When is Rolls-Royce’s next dividend payment date?

I think the outlook for Rolls-Royce shares is very balanced. It is certainly unrealistic to foresee a situation where the share price could fall below 100p again.

Additionally, if the company can continue to build debt and benefit from increased demand for its products, the stock could rise even higher.

I invested in a company recently. At today’s price of 109p, I’m minded to hold my shares. If there is a significant drop below 100p, I may buy more.