Ryanair share price target upgraded

RYANAIR’S proven ability to manage costs underpins Goodbody Stockbrokers’ latest upgrade of the airline’s share price target to €8.50, an upside of 37%.

Goodbody’s aviation analyst Joe Gill yesterday published a 20-page note on Ryanair arguing that investors, who understandably have been spooked by oil prices, should refocus on the progress made by Ryanair in cost management.

“After lowering per passenger costs by over 30% in the past three years ... initiatives launched over the past year, and in particular the new Boeing deal, will take that lower again. This is key to building shareholder value while growing volumes by over 20% each year,” he said. Mr Gill’s analysis demonstrates how Ryanair profits can grow over the next seven years, while allowing for a compound annual decline of 2% in fares over that period.

“Ryanair’s cost management is better than Southwest; its fares are much lower (€39.5 versus €68) and its margins are significantly higher. Yet it trades at a large discount to its US peer,” he said. He contends a target price €8.50 is justified. “Oil is creating gloom in the sector and has depressed valuations. We show airlines in general are a poor place for long-term institutional funds - only a proven cost manager warrants investment.” he said. Ryanair also announced yesterday it plans to open a new base at Luebeck in northern Germany. It will base up to four new Boeing-737 aircraft there, delivering up to two-million passengers a year to Luebeck airport once a deal has been finalised. The low-cost carrier already has bases in Germany serving Düsseldorf and Frankfurt. Ryanair said on Wednesday it had reached an out of court settlement with London airport operator BAA Plc over a fuel surcharges dispute.

BAA and Ryanair filed lawsuits against each other last year after clashing over the way the airport operator charges the airline for fuel levies at Stansted airport. The company’s have agreed a settlement which involves a once-off payment by Ryanair but will result in annual savings of €1.5m a year on aviation fuel.

Commenting on the settlement Mr Gill said: “the key point is that amid all the huffing and puffing in public on a variety of spats, Ryanair can ultimately close deals that are commercially sensible.

The fears in some quarters that the BAA relationship was doomed were misplaced.”