Company Reports

We initiate coverage on Ryanair with a no-moat rating and a fair value estimate of EUR 20, with valuation driven by controlled growth coupled with sectorwide capacity constraints.

Ryanair is Europe’s largest low-cost airline, offering budget-friendly fares and an extensive route network. Founded in 1984, it operates over 2,500 flights daily, serving 230-plus destinations across 40 countries. Its business model focuses on high aircraft utilization, low operating expenses, and generating ancillary revenue from services such as seat selection and onboard purchases.

We are dropping coverage of Ryanair. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

Ryanair has exceeded precoronvirus numbers for the first time since the start of the pandemic. The airline carried 45.5 million passengers in the first financial quarter of fiscal 2023, while load factors exceeded 90%. EBIT was EUR 170 million and strong cash flows from advanced ticket sales for the summer period reduced net debt down to EUR 400 million from EUR 1.45 billion a quarter ago. We maintain our EUR 18.20 fair value estimate and believe shares are very attractive at current levels. Ryanair is poised to emerge as a definite winner among European airlines; it has the fleet, balance sheet, route network and cost structure to take market share from operationally and financially inefficient peers. It is the top pick in our European airline coverage.

Ryanair is the largest European carrier based on passenger numbers. Since 2008, the company has grown at an annual rate of 9% from 51 million passengers in 2008 to 149 million passengers in 2020. This growth was achieved by deploying a rigid and focused low-cost strategy and passing on the savings by lowering fares to attract an underserved leisure passenger at the low end of the market. Market share growth coupled with a firm grasp on cost containment should drive double-digit profit growth over the medium term.

Ryanair remains optimistic about the return of passengers to its route network but strikes a tone of caution as it projects a modest return to profitability for financial 2023. The airline failed to provide specific guidance given the fragile recovery outlook characterized by rising inflation, threat of a recession, the war in Ukraine and potential coronavirus flare-ups. The group also cautioned that yields remain below prepandemic levels despite a strong booking outlook for the European summer season ahead. Ryanair is taking a load factor active/yield passive approach as it lures customers back with lower fares. Capacity over summer is expected to be 15% higher than in 2019 with load factors reaching 90%, while guiding for 165 million passengers for the full year, compared with 150 million travelers prepandemic. These targets require airports to fix existing staff shortages before the summer period. We believe shares are trading at an attractive discount to our EUR 18.20 fair value estimate. The group has a proven low-cost model and a strong balance sheet to take advantage of potential weaknesses among peers and gain market share.

Ryanair is the largest European carrier based on passenger numbers. Since 2008, the company has grown at an annual rate of 9% from 51 million passengers in 2008 to 149 million passengers in 2020. This growth was achieved by deploying a rigid and focused low-cost strategy and passing on the savings by lowering fares to attract an underserved leisure passenger at the low end of the market. Market share growth coupled with a firm grasp on cost containment should drive double-digit profit growth over the medium term.

Germany’s boost in defense spending, announced Feb. 27, will benefit most European defense contractors and could lead to multiyear increases in the growth outlook for these companies. While it is early days and very difficult to quantify the exact impact, we expect to make positive adjustments to our defense coverage. Of the pure-play defense names, narrow-moat Thales, Dassault, and Leonardo trade at discounts to our fair value estimates while wide-moat BAE Systems trades at a premium. We don’t believe our revisions will change this ranking by much, and our preference is for Thales and Dassault. Despite the impact from a demand and cost perspective on the airline and commercial aerospace companies we cover, we don’t foresee any structural long-term changes to their prospects and as such don’t anticipate any major changes to our fair value estimates. We maintain our preference for wide-moat Safran and no-moat Wizz Air under our aerospace and airline coverage, respectively.

No-moat Ryanair’s traffic recovery in the second quarter and the start of the third quarter was disrupted by the omicron variant, which negatively affected capacity and load factors in December 2021. January capacity has also been cut by 33% and the company now expects to fly between 6 million and 7 million passengers in January, compared with previous estimates of 10 million passengers. Guidance communicated at the outbreak of the omicron variant for the full year ended March 2022 remains unchanged, with expectations of a full-year loss between GBP 250 million and GBP 450 million and carrying less than 100 million passengers. Summer 2022 scheduled capacity is on track to exceed precoronavirus levels, with nearly 15% more seats available compared with 2019. Growth will be supported by the delivery of the group’s orders for 210 737-MAX aircraft, of which 41 have been delivered to date. We make no changes to our EUR 18.20 fair value estimate with shares trading in slight discount territory.

Ryanair is the largest European carrier based on passenger numbers. Since 2008, the company has grown at an annual rate of 9% from 51 million passengers in 2008 to 149 million passengers in 2020. This growth was achieved by deploying a rigid and focused low-cost strategy and passing on the savings by lowering fares to attract an underserved leisure passenger at the low end of the market. Market share growth coupled with a firm grasp on cost containment should drive double-digit profit growth over the medium term.