Stock Analysis & Valuation Rolls-Royce Holdings plc (RRU.DE)

• Previous Close: €14.08
• Sector Valuation Confidence Level: Moderate

Valuation method	Value, €	Upside, %
Artificial intelligence (AI)	41.00	191
Intrinsic value (DCF)	12361.31	87693
Graham-Dodd Method	1.40	-90
Graham Formula	7.60	-46

Strategic Investment Analysis

Company Overview

Rolls-Royce Holdings plc (RRU.DE) is a global leader in integrated power systems, serving aerospace, defense, and industrial markets. Headquartered in London, the company operates through four key segments: Civil Aerospace, Power Systems, Defense, and ITP Aero. Rolls-Royce is renowned for its cutting-edge aircraft engines, marine propulsion systems, and nuclear power solutions, with a strong focus on aftermarket services that drive recurring revenue. The company's Civil Aerospace division dominates the wide-body aircraft engine market, while its Defense segment supplies critical propulsion systems for military aircraft and naval vessels. With a heritage dating back to 1906, Rolls-Royce maintains a competitive edge through continuous R&D investment and strategic partnerships. As a key player in the Industrials sector, Rolls-Royce plays a vital role in global aviation, energy, and defense infrastructure, positioning it as a bellwether for aerospace and industrial innovation.

Investment Summary

Rolls-Royce presents a compelling investment case with its market-leading position in wide-body aircraft engines and strong defense contracts, supported by high-margin aftermarket services. The company's FY 2024 financials show improving profitability (€2.52B net income) and robust operating cash flow (€3.78B), though its high beta (1.62) indicates volatility sensitivity to macroeconomic conditions. The aerospace recovery post-pandemic and increased defense spending globally provide tailwinds, but investors should monitor debt levels (€5.14B) and execution risks in next-gen engine programs. The modest dividend yield (0.07/share) suggests capital is being prioritized for growth initiatives over shareholder returns in the near term.

Competitive Analysis

Rolls-Royce maintains a unique competitive position through its technological leadership in large aircraft engines (particularly for wide-body jets) and nuclear propulsion systems. The company's installed base creates a durable aftermarket revenue stream, with engine service contracts providing visibility. In Civil Aerospace, Rolls-Royce's Trent engine family dominates the 787 and A350 markets, though it faces pressure from GE and Pratt & Whitney in narrow-body segments. The Defense business benefits from long-term government contracts and specialized capabilities in submarine nuclear reactors. However, the company's broad diversification across aerospace, marine, and energy creates both revenue stability and complexity. Rolls-Royce's competitive weaknesses include limited exposure to the high-growth narrow-body market and dependence on a few aircraft platforms. The company is addressing this through its UltraFan next-gen engine technology and electrification initiatives. Compared to peers, Rolls-Royce has superior engineering capabilities in complex propulsion systems but trails in some digital service offerings. The 2023 restructuring has improved cost competitiveness, though supply chain challenges in aerospace remain an industry-wide headwind.

Major Competitors

• General Electric (GE): GE Aviation is Rolls-Royce's primary competitor in aircraft engines, with stronger positions in narrow-body (through CFM International JV) and business jet markets. GE's GEnx competes directly with Rolls' Trent 1000 on the 787. GE has superior scale and digital capabilities (through GE Digital) but is undergoing its own portfolio restructuring. GE's financial services arm provides additional customer financing options that Rolls-Royce lacks.
• RTX Corporation (RTX): RTX's Pratt & Whitney division competes in both commercial (PW1000G geared turbofan) and military engines (F135 for F-35). Pratt has gained share in narrow-body engines but faces reliability challenges. RTX's Collins Aerospace provides systems integration capabilities beyond Rolls-Royce's core propulsion focus. The company's recent GTF engine issues have created opportunities for competitors in aftermarket services.
• Safran SA (SAF.PA): Safran competes through its CFM International JV with GE (dominant in single-aisle engines) and own aircraft equipment business. While lacking Rolls-Royce's large engine expertise, Safran has superior margins and a stronger position in aircraft interiors and landing systems. The company's focus on narrow-body engines gives it exposure to faster-growing market segments but less aftermarket revenue per engine.
• Honeywell International (HON): Honeywell competes in aerospace through auxiliary power units, avionics, and business jet engines where it leads. The company's diversified industrial portfolio provides stability but less pure-play aerospace exposure than Rolls-Royce. Honeywell's strength in digital cockpit solutions and connectivity complements Rolls-Royce's propulsion focus, creating partnership opportunities.