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3 reasons why I think the Rolls Royce share price could rise next year

Andy Ross
·3-min read
Plane on runway
Plane on runway

The Rolls-Royce (LSE: RR) share price has been very up and down this year. It has become a surprisingly ‘Marmite’ share this year – you either love it or hate it. The bulls would argue that it’s fallen too far and is still a world-class company. Bears would likely argue its Trent engine problems are ongoing and it’s losing money hand over fist.

Recovery potential for the Rolls-Royce share price

There’s no doubt to me that if things go well with the vaccine rollout there’s a lot of recovery potential in Rolls-Royce shares. It’s not just that they’ve fallen during the pandemic, but they also fell in the preceding year. That’s because the engineering specialist – one of the world’s best-known engine makers – is grappling with several problems. Before the pandemic it was cash flow and its Trent engines. Both have been compounded by the pandemic. That’s the bad news.

The good news is I think the share price could very well still rise next year. Investors should look to the future, not the past. Rolls-Royce has a world-class reputation, should at some point resolve the Trent engine issues and the airline market will recover. That recovery could possibly come as early as next year, I feel.

But the firm has other options for growth as well.

Nuclear ambitions

Rolls-Royce shares could be boosted by its ambitions around modular nuclear reactors. This could help the UK achieve its new ambitious climate change goals.

Rolls-Royce is leading a consortium of companies aiming to get the design finalised. Some of this work has been funded by the UK government’s Research and Innovation agency. RR has also announced plans to build up to 16 mini-nuclear plants in the UK.

It says the development has huge potential both for itself and for the UK. A full programme could create 40,000 UK jobs and generate £52bn value for the economy, with tremendous commercial potential and an estimated global export market worth £250bn by 2050.

Narrow planes could be added to the mix

In the civil aerospace division, its largest unit, there’s the potential for Rolls-Royce to move away from the wide-body airlines it’s been focusing on. This market has been hit particularly hard during the pandemic. Just this month, the company said the coronavirus crisis may provide it with space for the development of critical new engine technologies. There’s also the chance of a move back into the narrow-body jet-liner market.

Looking ahead, it’s not hard to imagine that an engineer with the reputation of Rolls-Royce could be doing far better than it currently is. Management has been working conscientiously to try to improve the business. I think that next year a bounce-back could well happen and the results of management’s work will start to shine through.

The future is always an unknown, but I feel Rolls-Royce can be turned around and that the share price should start to rise next year. I may be tempted to add it to my portfolio, especially if the share prices drops.

The post 3 reasons why I think the Rolls Royce share price could rise next year appeared first on The Motley Fool UK.

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Andy Ross owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020