Ryanair 'a clear buying opportunity'

Whatever your feelings about Ryanair and this summer's pilot rota fiasco, there's likely to be grudging admiration among investors for how boss Michael O'Leary has managed the financial fall-out from the crisis.

Ryanair's shares surged by as much as 7% today as O'Leary said the airline remained on track for record annual profits, even though it has grounded 25 of its 400 aircraft this winter impacting some 700,000 customers.

But given the extent of these cancellations and the airline's recent PR disaster, it is significant that Ryanair still thinks passenger traffic in the second half of the financial year will grow by around 4%, compared with 11% in the first half.

The pilot shortage will still cost it more than €25 million (£22 million) in passenger compensation, with an extra €100 million (£88.2 million) on its wage bill. Despite all this, Ryanair is forecasting a full-year profit of up to €1.45 billion (£1.28 billion).

Liberum's airline analyst Gerald Khoo said this unchanged full-year guidance should reassure investors in the short-term.

Although further turbulence cannot be ruled out, along with the threat of additional pilot costs in a relatively tight labour market, Khoo said recent share price weakness was a clear buying opportunity for the long term.

He has kept his 'buy' rating and believes the shares could rise as high as €21, against the current €16.58. Ryanair trades on a March 2018 price/earnings (PE) ratio of 13.4 times, which is broadly in line with both the historic average and rival easyJet.

Khoo said: "Ryanair's attractive long-term fundamentals, underpinned by its low cost base, remain intact."

Ryanair still expects to carry 129 million passengers in this financial year, compared with its previous target of 131 million. Cantor Fitzgerald analyst Rob Byde points out this slower growth should mean less deflation in fares, with Ryanair believing the rate will now fall by between 4% and 6%.

Byde has maintained his 'hold' rating, although the broker's target price of €19 is now under review.

Aside from the staffing issues, O'Leary used today's half-year results to highlight the opportunities presented by the recent failures of airlines including Monarch and Air Berlin.

Ryanair continues to grow in Germany and plans to add more aircraft to its UK bases next summer in order to take up any slack created by Monarch's collapse.

He said the prospect of more European consolidation can only be good for Ryanair's yield and traffic growth performance as it aims for a fleet of 600 aircraft and annual passenger numbers of 200 million by 2024.

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