Is Flybe Group PLC Better Value Than easyJet plc and Ryanair Holdings Plc As Its Recovery Gathers Pace?

Ryanair Holdings Plc (LON: RYA) and easyJet plc (LON: EZJ) have soared, but is Flybe Group PLC (LON: FLYB) set to catch up?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There’s no doubt that investing in budget airlines has been a good choice of late, as both easyJet (LSE: EZJ) and Ryanair (LSE: RYA) shares have more than trebled over the past five years.

Compared to those two, the struggling Flybe (LSE: FLYB) has been a flop, with years of losses leading to an 80% share price fall over the same period. But with 10 June having brought us results for “the first full financial year of Flybe’s three year transformation plan“, could we be looking at a recovery bargain?

Forecasts suggest Flybe will be back in profit this year, with a trebling in EPS penciled in for the year to March 2017 putting the shares on a potential P/E of under 4! That’s still two years away, and a small airline recovery is a risky thing to invest in, but will it come good?

Flybe reported a pre-tax loss of £35.6m for the year, although £12m of that was from Flybe’s now discontinued joint venture with Finnair, after a reduction in charter business and a planned drop in overall capacity helped knock revenue down by 7.5% to £574m.

More bums on seats

But after a number of adjustments, the company claimed an “illustrative” profit of £16.6m, and it recorded improved passenger statistics with a 3.3% rise in revenue per seat to £51.35 and a 5.7 percentage point rise in load factor to 75.2%. The airline’s cash position is also healthy enough, with total cash of £195.9m as of 31 March. That equates to 90.4p, which seems attractive compared to today’s 58p share price.

We can’t ignore the competition though, so how are the two low-cost rivals faring? Well, easyJet shares have actually been flat since the start of 2014, but even after their terrific rise they’re still trading on a forward P/E of a fairly modest 12 on today’s 1,587p share price, dropping to 11 on 2016 forecasts — and that’s with well-covered dividends of better than 3%.

Ryanair, which has actually gained 62% over the past 12 months, is on a loftier valuation with mooted P/E multiples of 16.5 and 13.5 this year and next on a price of 11.9p, with only a 1.5% dividend indicated for 2017.

I don’t like airlines as an investment generally and I’d really want to see a low-enough valuation to give me a safety margin. On that score, easyJet comes close, and I think it could actually be a decent investment over the next few years. But I’d be steering clear of Ryanair on today’s valuations.

Flybe looks cheap

Putting those two aside, it looks to me like there’s a lot of upside potential for Flybe that’s just not accounted for in the current share price. I can understand why investors are cautious, but chief executive Saad Hammad opined that “Flybe is back on track to recovery and profitable growth” — and he could well be right.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s how investing £250 a month could bag me over £10K in passive income annually

This Fool breaks down how she would go about building a passive income stream worth over £10,000 annually to enjoy…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

I’d snap this FTSE 250 stock up in a heartbeat for juicy returns and growth!

Sumayya Mansoor explains why this FTSE 250 property stock is firmly on her radar as she looks to buy stocks…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

1 dirt-cheap FTSE 100 stock investors should consider buying in June

The FTSE 100 is littered with bargains, according to our writer. She explains why investors should be taking a closer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

The Legal & General share price has gone nowhere. Why?

The Legal & General share price has performed much worse than the the FTSE 100 over the past five years.…

Read more »

Investing Articles

Where will the BT share price go in the next 12 months? Here’s what the experts say

The BT share price has been sliding for years. But after the latest set of results, it looks like the…

Read more »

Investing Articles

Are National Grid shares now a brilliant bargain?

National Grid shares look exceptionally cheap following last week's selloff. Is now the time to buy the FTSE 100 firm…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Up more than 15%! — this small-cap company is delivering phenomenal dividend growth

There’s more good news in this company’s interim report and it may be shaping up as a decent dividend growth…

Read more »

Electric cars charging at a charging station
Investing Articles

Big news for Tesla stock investors!

Tesla has just quietly dropped a key target it set for itself just a few years ago. What does this…

Read more »