Ryanair's results are excellent, but the shares are down. Is this an opportunity?
Ryanair (LSE: RYA) is the company many of us love to hate -- but continue to use for the stunning value it offers.
Whether the shares offer such stunning value, though, is quite another matter. As Gordon Gekko said in "Wall Street": "Guys like me have had their asses hung in a sling with the airlines! Fuel could go up. Unions are killers."
What he didn't mention was Icelandic volcanic ash, or unfavourable legislation, or tourist taxes -- all problems Ryanair has faced in its first half to the end of September.
More people, more money
These factors didn't stop the airline form managing a 15% rise in profits buoyed by a big increase in passenger numbers who paid 12% higher fares on average of €44.
The airline's results come a couple of days after British Airways (LSE: BAY) reported its first profit in two years, despite cabin crew strikes and Icelandic ash. But the Irish upstart is now by far the larger of the two airlines by market capitalisation.
Ryanair made a pre-tax profit of €482.5m on revenues of close to €2.2bn (23% up on the previous year) thanks to passenger numbers of over 40 million; a 10% increase on last year.
The results are generally bullish. Ryanair says it is continuing to win market share from the big three flag carrier groups led by Air France, BA and Lufthansa. In Spain, it has overtaken Iberia to become the largest airline by passenger numbers and it reckons the generally excellent results are testament to its lowest cost, lowest fare model, which has continued to deliver throughout the recession.
The results come after Ryanair pulled out of Belfast City Airport at the weekend following a dispute over delays to a proposed runway extension. The company first announced that it would be leaving the airport in August after a public inquiry into the plans -- which of course it likes -- was put back.
O'Leary on form
Ryanair's boss Michael O'Leary is no shrinking violet. And that's an understatement.
With Monday's results, he pulls no punches as usual, slamming the Irish government's €10 tourist tax, and urging it to break up the DAA's (Dublin Airport Authority) airport monopoly, as happened in the UK with the break-up of the BAA (British Airports Authority) monopoly.
He also tears into the Belgian, French and Spanish air traffic controllers' strikes -- calling them "highly paid protected bureaucrats" -- and the EU's lack of action over them.
Michael O'Leary undoubtedly makes for great copy for journalists and is the kind of straight-talking interviewee whose utterances really seem to mean something beyond the usual kind of corporate blandishments we've all seen far too much of.
Close but no cigar
Straight-talking as he is, though, what we're really interested in is whether the shares are a good investment today. As far as I'm concerned, that's a resounding 'no', despite the fact that the balance sheet and earnings appear relatively strong.
Cash on hand at the end of September was €3.0bn, driven up by increased profitability -- since when the company has made an admirable hole in it by doling out a €500m one-off dividend to shareholders (and, by the way, let's hope other companies are taking note here rather than buying back their own shares continually).
The payment brings the total funds returned by Ryanair to shareholders over the past 3 years to almost €850m.
Ryanair says its full-year net profit will exceed the upper end of its previous forecast range -- and will now finish within a range of €380m to €400m. Strip out the cash, and the price-to-earnings falls to well under 10 for the current year, and lower still for the years ahead.
With a valuation hovering around the €6bn mark, though, it would be a take a brave or very optimistic investor to buy in. There isn't enough in the way of overall balance sheet strength, prospective earnings or yield to make the shares look a lot more tempting than some of the other big guns around for my money.
Overall, I'm inclined to agree with Gordon Gekko's knee-jerk reaction to investing in airlines, but I'll continue to buy Ryanair's flights -- and to watch the boss's interviews.
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