2023-05-22 13:28:01 ET
Summary
- Ryanair profits are almost fully recovered.
- Company to enter a moderated growth phase with focus on maintaining pricing power and cost control.
- Premium valuation tool of The Aerospace Forum shows upside remains.
Ryanair Holdings ( RYAAY ) announced its full year results today. As I point out quite often, Ryanair is far from a glamorous airline, but it does a good job at what it focuses on and that is flying you from point A to B at the lowest fare possible that also allows them to make a profit in the process. It does so by carefully keeping track of costs and optimizing ancillary revenue streams. That cost-conscious approach is paying off for the company. In this report, I will be analyzing full year results and discuss the price target for Ryanair stock.
Ryanair Stock Delivers On Its Prospects
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In July 2022, I published a report where I continued marking Ryanair Holdings plc stock a buy despite a fragile profit pressured by fuel prices. Since then the stock has gained 42% compared to a 6% for the S&P 500 ( SP500 ), showing strong market outperformance, which is what I am looking for in stocks I have a Buy rating on.
Ryanair Indicators Improve On All Levels
Year-over-year, the number of passengers grew 74% but more importantly, traffic exceeded pre-pandemic levels by 13.5% while fares were 11% higher together with strong ancillary revenues accounting for 36% of the revenues. Total revenues grew by 124%. We also see continued strong demand with a 93% load factor, which even for a low-cost carrier is very strong. Furthermore, we see that revenue growth outpaced costs growth which certainly is not something that all airlines are seeing.
The profits of €1.4 billion indicating a margin of 13.3% were not fully back at pre-pandemic levels but they are over 98% recovered. So, I would say, all in all, it has been a strong year for Ryanair.
What is helping Ryanair significantly is its cost control. We see that essentially the costs per passenger excluding fuel have been flat compared to pre-pandemic levels and that is inflation has been mounting and labor has become more expensive. The advantage has only widened for Ryanair compared to competitors. Low cost is in the DNA of the company, and it shows with even outperforming low-cost peers. However, it should also be noted that for instance on airport handling the airline compares itself with easyJet (EJTTF) which does fly to some primary airports whereas Ryanair elects to operate from secondary airports which are less expensive to operate from. Furthermore, Ryanair is a tough partner to negotiate with as an airport. The airline for instance has been negotiating with my local airport and since the local airport did not provide additional discounts, Ryanair halted operations to and from the airport. All of that leads to a low-cost basis.
Ryanair currently has a liquidity of €4.7 billion, which allows them to easily repay the bonds due August 203 as well as the Capex FY24. Ryanair’s operating cash flow was €3.9. Most of the cash generation happens in Q1, so there is a strong liquidity and forward cash generation to be expected. Overall, the company is positioned well and interestingly it is aiming to preserve cash to pay for the MAX 10 order. With high interest rates and a strong cash generation and liquidity profile, that makes sense.
Long-Term Ryanair Targets Remain
For the full year, Ryanair maintains its outlook for 185 million passengers. However, with some delays in airplane deliveries, that target might slip as Ryanair is not too keen on throwing on capacity in low-yielding quarters. The fuel bill is expected to be up €1 billion, but demand is expected to remain robust with Q1 being very strong due to a favorable comp caused by the impact of the invasion of Ukraine on Ryanair’s fares and capacity deployment last year.
Ryanair did discuss the recent Boeing 737 MAX 10 ( BA ) order, but that is not a topic I will be discussing here as I already shared my view on that with subscribers in a dedicated report.
Are Ryanair shares a good buy?
I believe Ryanair shares remain attractive. The company is operating above pre-pandemic levels, meaning that the company together with other low-cost carriers has eroded the market share of the legacy carriers in Europe. We see further growth ahead. While this will be at a moderated pace in the mid-term, it will allow Ryanair to continue competing efficiently.
I put in all the numbers in an interactive tool that we will soon launch for subscribers of The Aerospace Forum to determine data-driven price targets for aerospace and airline stocks, and Ryanair stock still provides 11 to 14 percent upside while being valued in line with the industry median.
Conclusion: Ryanair Stock Remains Attractive
I believe that Ryanair stock remains attractive, driven by the low-cost mindset that the airline has and successfully executes. If you are looking at value driven upside running in the 30 to 40 percent, then Ryanair stock might not be for you. I would say that the buy opportunity already manifested itself last year when I marked shares a buy. This year will be somewhat challenging as costs will rise. The expected results up until March 2024 still provide upside and further upside is expected beyond that point. If you can wait another year for significantly more upside or you are OK with 10 to 15 percent value driven upside this year then Ryanair stock remains a buy.
For further details see:
Ryanair's Profit And Stock Continue To Fly High