Summary
- Ryanair returns to pre-COVID-19 levels and is not afraid of the super dollar and inflation.
- The targets have been revised upwards: passengers at 168 million and profits over €1 billion.
- The Gamechanger strategy and more seats available will be key positive catalysts. Our buy rating is confirmed.
After having analyzed easyJet's year-end trading update , we were already positive on Ryanair ( RYAAY ) ( RYAOF ). Yesterday, the low-cost operator release its quarterly numbers and the company is finally back at the pre-COVID-19 level, confirming our long-standing investment thesis. This is not coming as a surprise , indeed, in October, the low-cost Irish company transported 15.7 million passengers, a record for the month signing a plus 38% compared to last year's period and a plus 14% compared to the pre-COVID-19 levels. While the load factor for the month increased to 94% from 84%.
Almost everyone is fearing inflation and recession; however, this is not Ryanair's case which has raised its passenger target for the current year for the first time since the COVID crisis and plans to close the financial year with a profit of over €1 billion. In this perspective, number one Michael O'Leary, on the occasion of the publication of the half-year results, emphasized that industry impacts were exaggerated by predicting that travel will continue to happen, with passengers seeking cheaper fares, such as Ryanair.
Going to the financial highlights, the company delivered a very good set of numbers.
More in detail:
- The carrier plans to repay part of the debt accumulated during the crisis, using the strong cash flow generation, and aims to be net debt zero by March 2024;
- With the dollar and fuel rises, Ryanair is hedged against the risks of fluctuations of both. A choice that allows the company to limit tariff increases and move on with its Gamechanger strategy . Numbers in hand, fuel is hedged at 81% at $67 per barrel in 2023 as well as aircraft CAPEX at €/$ 1.24 until 2026;
- During the winter season, the company intends to offer 10% more seats versus the pre-COVID-19 level, in contrast to the rest of the European competitors who instead plan to reduce capacity by 20% on average;
- As already mentioned, the Italian market did very well and allowed Ryanair to close the summer with the best performance ever and with a market share of 40%;
- On a negative note, we should report that if the Socialist political party will seize power and change the corporate tax regime in Ireland, the company would likely move its fiscal residency.
Conclusion & Valuation
The company raised the guidance and these numbers are forecasted to rise again. Indeed, CEO Michael O'Leary told Reuters that bookings for winter/Christmas holidays are already above pre-pandemic levels. With the latest indication, in line with our previous expectation (€1 billion in net profit), we decide to leave unchanged our target price at €19 per share .
For further details see:
Ryanair: All Positive!