Ryanair Holdings plc (NASDAQ: RYAAY, OTCPK:RYAOF) is the holding company of Ryanair Limited, the European low-cost airline operator. The company (RYAAY, OTCPK:RYAOF) also provides various ancillary services such as car rental marketing and accommodation services, travel insurance, catering and many more. Watching Ryanair’s latest investor presentationhe had a main fleet of about 560 aircraft and offered approximately 2,500 routes per day serving approximately 230 airports. Ryanair Holdings was incorporated in 1985 and is headquartered in Swords (Ireland).
Besides the Ryanair brand, the company also operates with the following carriers:
Why are we positive?
Ryanair’s Gamechanger strategy equates to more seats, less fuel and other costs, extra capacity at airports and lower fares which lead to more traffic and more profit in a positive circle. Ryanair is the undisputed leader in low-cost fares.
Following our article on easyJet (OTCPK: EJTTF, OTCQX: ESYJY), we are positive about the summer 2022 recovery even if overcapacity in the coming months could weigh on profitability.
March figures were hit by around 2,000 canceled flights following the Russian invasion of Ukraine, but Ryanair recorded 2.5 million more passengers than the previous month. In March 2022, Ryanair carried 11.2 million passengers with an average LF of 87% operating over 67,800 flights.
Ryanair Holdings announced on April 4 that: “it expects to report a pre-exceptional net loss for FY22 (financial year ended March 31, 2022) of between -€350 million and -€400 million (previously forecast range of -€250 million at -€450m) traffic recovered strongly to over 97m (27.5m in FY21, but below pre-Covid traffic of 149m). Judging by the figures, revenues more than quadrupled to €1.47 billion over the period and air traffic increased in a similar proportion, knowing that the end of 2020 was marked by very strict restrictions. restrictions on international travel due to Covid-19.
Ryanair’s balance sheet is one of the strongest in the industry. Net debt at the end of the year fell to €1.5bn and as of the last update, the Irish company’s fuel cover will cover almost 80%.
Conclusion, valuation and risks
Airline accounts are struggling to turn a profit, and market players remain among the businesses most weakened by the pandemic. The Irish company still managed to reduce its net loss to 96 million euros, even though the Omicron variant weighed on Christmas air traffic. After the latest update, Ryanair implicitly reiterated its estimate of 100 million passengers for this financial year.
The next catalyst will be on May 16 with FY22 results. Currently, the company is trading at a forecast EBITDA for 23 of 7x versus a historical five-year average of 8x. In addition to multiple valuations, we value the Irish operator with a DCF model whose main inputs are as follows:
- WACC set at 10%;
- Long-term growth rate at 2.5%;
- Long-term operating margin at 15%.
Based on the parameters above, we see upside potential in the company with a price target of €20 per share. The main risks to our target price include cost inflation (particularly staff costs), demand for air travel, new mergers and acquisitions, new variants and increased competition, especially Wizz Air.
Previous coverage in the travel and leisure industry:
easyJet: Short Turbulence, Long Upside