Davy Stockbrokers is picking Ryanair as its transport stock of 2013 as it expects the no-frills airline to revitalise growth.
In a detailed analysis of the airline market, Davy forecast that Ryanair’s stock price could increase from €5.35 to over €6 in the coming year.
Analyst Stephen Furlong said he can see the airline growing. “With a favourable capacity environment, positive revenue momentum, and the potential for a renewed growth story, we are increasing our Ryanair price target to €6 (from €5.35),” he said.
In the near term, Davy does not believe Ryanair will record considerable growth in passengers this year as the airline was not expected to take delivery of any new aircraft, but due to Ryanair’s business model, revenues could still be expected to grow.
“With no further aircraft deliveries implying just 4% capacity growth this summer and some building blocks of unit revenue already put in place in terms of priority seating and credit card fees, coupled with Ryanair’s legendary cost discipline, we are raising our price target to €6 and maintaining our ‘outperform’ rating,” he said.
Looking at the long-term future of Ryanair, Mr Furlong said the airline, which carried nearly 80m passengers last year, could grow its number by 50%.
“Ryanair has circa 12% of the European short-haul market and sees the potential to grow profitably to 120m passengers per annum over the next 10 years. We see the story returning to one of growth, which could lead to multiple expansion,” he said.
Davy expects an update on a deal with Boeing to provide the airline with the capacity to fuel expansion. The airline will also benefit from the sale of Stansted.
Davy was not as bullish on the Aer Lingus share price. The analysis forecasts a full year operating profit of €73.9m (€72.8m in H2) on revenue of €1.37m.
The airline suffered last year as a result of weaker business demand in core routes to London during the Olympics as well as fuel price and airport cost inflation. However, Aer Lingus remains healthy.
“Forward bookings were ahead of last year; since then, traffic statistics have been strong, notably on long haul. At the end of the quarter, the airline had gross cash of €990.8m (after the €16m dividend payment) and debt of €549.7m. The Greenfield cost programme has delivered more than €100m in cost savings,” Mr Furlong said.
Overall, Davy said that the larger airlines — IAG, Lufthansa, and Air France-KLM — were finally recognising the challenges that they were facing from the low cost airlines such as easyJet and Ryanair.
“We are more positive on the network airlines as they are finally getting serious about the need for fundamental restructuring,” he said.
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