By Priya Raman

Rolls-Royce will buy back £1.5bn of its own shares, and the market answered immediately: the stock climbed more than 2.8 per cent in early trading on Thursday. The fresh purchase, announced alongside a third-quarter trading update, adds to the engineering group's longstanding plan to return up to £9bn to shareholders.

The decision rests on a simple mechanism. Power-hungry data centres need their own electricity supply, and Rolls-Royce sells the gas-fired engines that provide it. CEO Tufan Erginbilgic said the group was on track to comfortably reach its full-year targets, hailing the "strong operational, strategic and financial progress" made in the second half of the 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," Erginbilgic said.

Why is the power systems arm surging?

The numbers tell the story. The power systems division reported a 62 per cent year-on-year jump in the nine months to October, and its £8.6bn order book is the highest in the company's 120-year history. Around 40 per cent of the division's operating profit comes from services — the maintenance and support contracts that run alongside engine sales — and Rolls-Royce expects double-digit revenue growth with improving margins there.

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

Erginbilgic pointed to the "significant value creation we continue to see ahead" as the justification for accelerating the cash return programme.

How strong is the aerospace side?

Strong, and getting stronger. The company reported "strong demand" across both its flagship defence and civil aerospace divisions. The plane engine business now carries an order backlog of roughly 2,500 engines, after booking large orders over the period from Cathay Pacific, Air China and Philippine Airlines.

The defence side benefits from the same geopolitical tailwind lifting the whole sector: the West's rearmament drive, which has pushed governments across Europe and North America to lift military budgets.

What changed since 2020?

Plenty. The pandemic grounded air travel and burned a hole in Rolls-Royce's balance sheet, forcing the firm to raise an emergency £5bn funding package in 2020. Erginbilgic took over and oversaw a marked turnaround — cost cuts, restructuring and a push into new markets — and the share price reflects it.

The stock has climbed more than 15 per cent this year. Over five years, it has gained more than 860 per cent. Not bad for a company that spent 2020 fighting for its balance sheet.

Beyond engines, the group is among the most advanced developers of small modular reactors (SMRs) — mini nuclear power plants built to a cookie-cutter design that policymakers hope will make rollout quick and cheap. The SMR unit is in the early stages of becoming operational, and it recently bagged a Swedish nuclear contract. The push for reliable green energy is another megatrend working in the company's favour.

What comes next?

Targets are moving. Erginbilgic said the company will revisit its mid-term targets at its full-year results in February, given the strong progress this year.

For investors, the message is straightforward. The buyback acceleration is a signal: management sees more cash coming than it needs for the business, and it is choosing to hand it back rather than sit on it. The bet rests on data centre power demand, defence spending and a civil aerospace backlog holding firm. On Thursday's evidence, shareholders bought the logic.