Can Ryanair Holdings plc and easyJet plc buck the Brexit trend?

Will passenger numbers keep growing at Ryanair Holdings plc (LON: RYA) and easyJet plc (LON: EZJ)?

| 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.

A sharp rise in fuel costs in Sterling, currency exchange losses as the pound plummets, outbound passenger numbers falling as belts are tightened in new low-growth and high-inflation times, and even the possible loss of access to Europe’s open skies — all of these mean Brexit is a disaster for the airline sector, yes?

Passenger growth

Well, not necessarily, and not if you look to the longer term and you believe the latest predictions from Ryanair (LSE: RYA).

The budget airline today released its first-half figures, and they’re headlined by a 7% rise in after-tax profit to €1,168m with basic earnings per share up 15% to €0.92. Some caution is needed before UK investors get too excited about that, because those gains are in euros and will be pretty much wiped out for people taking their profits in pounds,. But the longer-term picture is anything but gloomy.

First-half passenger numbers grew by 12% to 65 million, and that’s helped Ryanair to raise its forecasts. The company is now expecting to carry 119m passengers for the full year ending March 2017, though revenues are almost certain to fall due to Brexit effects (and the winter season).

But the firm’s forecast as far out as 2024 has been lifted by 10% to more than 200m passengers, and we also heard that “Despite the uncertainty of Brexit, Ryanair believes that we can deliver profitable growth across Europe“.

The Ryanair share price gained 5% as a result, to €13.42, and a sharp fall in the immediate days after the referendum has been mostly undone. But the shares are still down 7% since the momentous day, so are they worth buying?

We’re looking at a forward P/E for this year of a little over 12, dropping to 11 on 2018 forecasts. That’s lower than it’s been for some years, and if you believe those long-term forecasts then you could be looking at a good (if slightly risky) investment.

Collapsing pound

Over at easyJet (LSE: EZJ), whose accounting is all in pounds, there’s been no share price rebound after the Brexit plunge — the shares are still down 36% since the vote, at 980p.

And after years of rising earnings, there’s a 22% EPS fall for the year to September 2016 currently expected, followed by a further 16% next — more than just the decline in Sterling.

But passenger numbers for October showed a 6.9% rise compared to October 2015, and a 6.3% rise in rolling 12-month figures, and that matches Ryanair’s figures quite nicely.

Full-year figures should be with us on 15 November, and in October’s trading update we were told to expect pre-tax profit in the range of £490m to £495m — after an adverse impact of around £90m from currency exchange movements.

Chief executive Carolyn McCall said that the firm has been “disproportionately affected by extraordinary events this year“, but put faith in “our excellent network, cost control and revenue initiatives and our strong balance sheet“.

Is easyJet one to buy now, too? We’re looking at lower forward P/E multiples, of 9 and 10.6 for this year and next respectively. Those are lower than Ryanair’s, though understandably so with easyJet’s Sterling focus. But against that, easyJet is still expected to pay dividends — admittedly dropping next year, but they should still yield 5.4% this year and 4.5% next.

This could be another for those who can see through shorter-term risk.

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

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

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

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »