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Questor share tip: Buy Ryanair on profit upgrades
Airline company returns to more profitable ways after changing its tune on customer service, says Questor
Ryanair
€8.15+0.56c
Questor says BUY
TWELVE months ago, Ryanair was caught in a media storm after two profit warnings sent its shares tumbling as low as €5.33 and the king of the budget airline industry was accused of having taken its eye off the ball.
Twelve months on, Ryanair seems to be back to its old game of under-promising and over-delivering as it yesterday upgraded its full-year profit guidance for the third time in the space of just four months.
Half-year profit after tax, which jumped 32pc to €795m, wasn’t much of a surprise; analysts had been expecting a strong performance for the six months to September 30, which incorporates the key summer period. But the City was cheered by a significant increase in the airline’s full-year guidance to €750m-770m. If profits come in at the middle of that improved range, that would imply a 45pc increase on last year’s result of €523m.
Shares have recovered over the last twelve months, closing up 7.83pc yesterday at €8.15.
Given the improvement, it would be fair to argue that if you didn’t catch a ride on Ryanair during its recovery, then you may have missed the plane.
However, Ryanair has also laid out ambitious growth targets to reach 150m passengers per annum by 2024, up from the expected 89m by the end of the current financial year.
The expansion is already underway, as the carrier embarks on a significant increase in capacity over the winter months - traffic will growth by 12pc in the third quarter and by 20pc in the fourth quarter.
Forward bookings for November, December, January, February and March are already up by 2pc, 7pc, 5pc, 5pc and 3pc respectively. Average fares will fall during that period but Ryanair expects fares to have edged ahead by 1pc for the full year to 47.
Crucially, costs will be flat. Low cost carriers still only occupy just over a third of the European aviation market. While Ryanair has the biggest market share of its budget peers, there is plenty of reason to believe that it can achieve its growth ambitions, particularly as its costs remain by far the lowest in the industry.
In the event of a head-to-head battle with a rival, it will always win on price and the customer service improvements slowly appear to be gaining traction. Questor believes there is still growth to come.