Rolls-Royce (LSE: RR.) shares have soared since the pandemic, but the success story may not be over yet. The big question is whether the company can keep growing its profits and cash flow quickly enough to deliver another 35% gain in the shares. If it can, £20 may not be as ambitious as it first appears.

The cash engine

The biggest reason I think Rolls-Royce shares can still move higher isn’t some distant bet on small modular reactors (SMRs). It’s the company’s existing engines, and the money it makes keeping them flying.

Civil Aerospace operating margins jumped to 25.3% in H1 2026, helped by stronger long-term service agreement (LTSA) margins and more shop visits. Large-engine maintenance, repair and overhaul output rose 13% in the first half.

That’s important because every time an airline sends one of its engines back for maintenance, that provides it with another opportunity to make money from its installed base. And this could have much further to run.

Management says only around 25% of the cash value created by improving LTSA contracts will have been realised by 2028. In other words, much of the benefit is still ahead. In addition, its time-on-wing programme, which is a key driver of LTSA margin improvement and cash flows, is helping to improve engine durability.

Powering the AI boom

There’s another reason I think Rolls-Royce could keep growing: the huge amount of electricity needed to power the world’s data centres. The rise of AI’s driving demand for new data centres, and those facilities need reliable power around the clock.

Demand is so strong that it’s raised its target for power generation original equipment revenue growth to 25% a year through 2030. Its previous target was 20%

The really interesting part is that prime power currently makes up less than 10% of the business. The company expects that to grow much faster than its backup business as data centre operators look for more ways to meet their enormous energy needs.

In addition, the company’s also developing a new generation of engines specifically aimed at the data centre market, due to launch in 2028.

What could go wrong?

There are two obvious risks to this growth story. First, the company needs airlines to keep flying. With oil prices approaching $100 a barrel and inflation back on the agenda, higher costs could put pressure on airlines and passenger demand.

To my mind, the shares don’t need to crash for the investment case to weaken. If flying hours peak and LTSA growth falls short of expectations, the company could simply be approaching peak earnings.

Power Systems faces a different risk. Management’s bullish outlook depends heavily on the data centre buildout continuing at pace.

But there are already signs of a backlash. Back in July, New York imposed a moratorium on large data centres amid growing concerns about their impact on the environment. Other states are also tightening the rules around data centre development.

For me, a trailing price-to-earnings ratio of 41 isn’t necessarily a showstopper. It’s that expectations are so high. I like buying shares where I see an obvious risk/reward ratio. I’m not sure that’s the case today, so I won’t be buying.

Should you invest £5,000 in Rolls-Royce Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Rolls-Royce Plc made the list?

 See The Six Stocks

Andrew Mackie does not hold any positions in the companies mentioned.

The post Could Rolls-Royce shares reach £20? Here’s what would need to happen appeared first on The Twelfth Magpie.

More reading

The Twelfth Magpie 2026