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Ryanair (RYA) shares are demonstrating impressive resilience despite news that FY net profit growth is set to slow (+13% vs +43%) and after management delivered an uncharacteristically downbeat update, highlighting terrorism worries potentially pushing falling ticket prices even lower (forecast -7% this year) and a rising oil price requiring prudence. While caution was called for regarding the key Q2 summer season with fares seen flat to lower (thankfully helping boost bookings so far) it was also been made clear that there are no plans for additional capital returns beyond the current €800m share buyback while organic growth takes priority over M&A.
Investors appear content to continue believing in low cost airline Ryanair’s tradition for conservatism regarding targets (FY2017 traffic +9%), preferring to focus on solid passenger stats (+17.4%) and improved profitability (net margin +400bps) from higher load factors, passengers willing to shell out for and endless list of zero costing extras (priority boarding, pick your seat, extra legroom) and legendary cost management (rent your own uniform). Regarding the latter, good news comes from the company being able to lock in lower fuel costs to a much higher percentage (44% for 2018) than normal. Markets look to be buying into the usual upgrade coming later in the year?
Mike van Dulken, Head of Research, 23 May
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