A major appeal for many investors is the potential for shares to bring retirement a big step closer. Clearly, the degree to which they make a difference depends upon the performance of the wider index, but it can also be down to stock selection by the investor, too. Furthermore, giving companies the time they need to deliver improved performance can also make a major difference, with company strategies evolving over time in response to changing industry outlooks.
One company that has changed its strategy is budget airline, Ryanair (LSE: RYA). It has deliberately changed its treatment of customers, with it attempting to improve customer satisfaction and build brand loyalty. In the past, this was not seen as being of major importance by Ryanair, with cost and convenience being the major features of its business model. However, with the level of service from other budget airlines improving, it recognised that change was needed and, as today’s update from the company showed, it is having a positive impact on its financial performance.
In fact, Ryanair has today increased its guidance for the full-year, with it now anticipating that net profit will be as much as 25% higher than previously anticipated. This means that its bottom line is likely to be in the range of €1.18bn to €1.23bn, with stronger than expected traffic during July and August having a positive impact on its financial performance.
Of course, Ryanair has benefitted from a low oil price, a weak Euro improving demand for flights from the UK to Europe and poor weather in Northern Europe. And, while these factors will not persist in perpetuity, the company’s valuation appears to include a sufficient margin of safety to take into account such risks. For example, Ryanair has a price to earnings growth (PEG) ratio of just 0.9, which indicates that now could be a good time to buy the company’s shares for the long term.
Meanwhile, Santander (LSE: BNC) has also shifted its strategy in recent months. It conducted a placing to shore up its balance sheet and also committed to maintaining its high degree of geographical diversity. This is somewhat surprising on the one hand, since across the banking industry there has been a trend for disposing of so-called non-core assets. However, Santander’s appeal as a diversified global bank is substantial and, with dividends being cut as part of a refreshed strategy to build a bank with stronger foundations, it appears to have a sound long term future. Furthermore, with it trading on a price to earnings (P/E) ratio of just 10, it appears to be excellent value for money, too.
Similarly, water services company, Severn Trent (LSE: SVT), also has huge long term appeal. It may offer less exciting growth opportunities than Santander or Ryanair, but its dividend prospects are superb. Part of the reason for this is the stability that Severn Trent offers as an income stock, with its shareholder payouts having increased from 65.1p per share in 2011 to 84.9p per share last year.
That’s an annualised growth rate of 6.9% over a four year period and, with dividends due to rise by 2.4%, Severn Trent’s 3.8% yield looks set to rise at a faster rate than inflation. As such, it could be a popular long term performer if market volatility remains high and interest rates fail to rise at a rapid rate.
