Shares in Rolls-Royce jumped on Thursday after the engineering giant ramped up its share buyback programme on the back of continued demand for its gas and defence engines.

The FTSE 100 darling’s stock price climbed over 2.8 per cent in early trading, following its launch of a fresh plan to purchase £1.5bn of its own shares.

In its third-quarter trading update, Tufan Erginbilgic indicated the group was on track to comfortably reach its full-year targets, hailing the “strong operational, strategic and financial progress” it had made in the second half of its financial year.

“Our transformation and the actions we are taking are creating a Rolls-Royce with a diversified portfolio of high-performing businesses, with greater resilience and significant growth potential,” he said.

Rolls-Royce aviation division takes off

Performance was boosted by the continued demand for its gas-fired engines, which have benefited from the rapid roll-out of power-hungry data centers. Its power systems arm reported a 62 per cent year-on-year jump in the nine months to October, and the division’s £8.6bn order book is the highest in the company’s 120-year history.

Around 40 per cent of operating profit comes from services in the power systems arm from which Rolls-Royce expects to generate double-digit revenue growth and improving margins.

“Data centres are becoming a big business for Rolls-Royce,” said Alex Pugh, analyst at Freetrade. “Orders for its gas engines nearly tripled, driven by data centres that need their own power supply.”

Erginbilgic added the company was predicting “significant value creation we continue to see ahead”, allowing it to accelerate its programme to return cash to shareholders.

The £1.5bn share purchase is the latest fillip to investors in the group’s longstanding plan to purchase up to £9bn of stock.

The engine-maker was also boosted by “strong demand” across its flagship defence and plane divisions, the latter of which it said now had an order backlog of roughly 2,500 engines. It booked large orders from the likes of Cathay Pacific, Air China and Philippine Airlines over the period.

The update marks another step in Rolls-Royce’s marked turnaround overseen by Erginbilgic since the Coronavirus pandemic. The FTSE 100 firm was forced to raise an emergency £5bn funding package in 2020 in a bid to plug the hole in its balance sheet burned by the collapse in air travel.

The group has also been boosted by geopolitical megatrends, including the West’s rearmament drive and the push for reliable green energy. The company is among the most advanced developers of small modular reactors, the mini nuclear power plants that policymakers hope will be easy to roll-out thanks to their cookie-cutter production.

Erginbilgic said: “Given our strong progress this year, we will revisit our mid-term targets at our full-year results in February.”

Rolls-Royce shares have now climbed more than 15 per cent this year, and over 860 per cent in the past five years.