Image source: Getty Images
The surge in Rolls-Royce (LSE: RR.) shares seems never ending. The British engineering firm is now worth £125bn in market cap. Its dizzying rise has propelled it to be the fifth-largest firm listed on the FTSE 100. The question I’m asking myself is: are we looking at Britain’s first trillion-pound company?
For Rolls-Royce to reach the £1trn mark, the share price would need to rise by over eight times. A near tenfold increase in value would be some feat for a company that is already something of a giant. But, as I’ll get to, the future prospects here are very bright indeed.
Contenders
What is its competition on the race to the ‘four comma club’? Let’s leave aside unlisted companies for now. A firm like Jim Ratcliffe’s INEOS might be in the running. But it’s not so easy to evaluate the prospects or value of firms that aren’t on the London Stock Exchange.
The fourth- and third-largest Footsie firms are £150bn consumer goods firm Unilever and £220bn oil major Shell. Both are behemoths in their own right. But a lack of obvious growth prospects makes them outside bets for hitting the trillion mark.
Banking giant HSBC, with a £230bn market cap, might be a different kettle of fish. It could be set to benefit in the years ahead if China maintains its yearly 5% GDP growth rate. Remember, much of the bank’s operations are in China and Asia.
The biggest FTSE 100 firm, AstraZeneca, is a contender too. The £260bn pharma titan is leading the pack, for one. Throw in a new blockbuster drug or two from its pipeline and this could be the bookie’s favourite.
For me though? I think Rolls-Royce might have the best chance of them all.
Catalysts
A company growing eight times in value is very rare. One achieving it while already being one of the world’s biggest companies is extremely rare. The few times it has happened, it’s usually down to a catalyst.
Nvidia is a great example. Large language models come along and the chipmaker’s prospects and earnings surged. The share price is up 14 times since the release of ChatGPT.
One eye-catching catalyst for Rolls-Royce is its small modular reactors (SMRs). These tiny nuclear stations promise to be the missing piece of the Net Zero jigsaw. When the wind isn’t blowing or the sun isn’t shining, these SMRs could provide electricity instead of fossil fuels. And their size makes them much easier to build compared to a red tape-filled nightmare like Hinckley Point C.
That said, this is a speculative technology. As of 2025, only a couple of SMRs worldwide are online, neither built by Rolls-Royce. It will take years or decades to discover whether these tiny nuclear power plants are viable and scalable.
But if I am discussing the UK’s first £1trn company, then I imagine SMRs will have something to do with it.
This story originally appeared on Motley Fool
