Ryanair’s shares upgraded to ‘buy’

RYANAIR’S 12-month share price target has been raised to €7 by Dolmen Securities.

Dolmen yesterday re-rated Ryanair shares upward from 'neutral' to 'buy' after the oil price strength of recent weeks resulted in some profit-taking in the Ryanair share price.

Dolmen's Stuart Draper explained that with limited further upside risk to the oil price near term, they are now upgrading their 12-month price target from €6 to €7, an 18% upside. "The consensus forecast is that Ryanair will now generate earnings per share of 36.8c for the year ending 31/03/06. When recently recommending some profit-taking at the €6.50 level in the aftermath of the airline's Q3 results, our view was that there would be opportunities to buyback into one of our top 12 stock picks for 2005 under €6 later in the year," he said.

Ryanair has recently announced a major expansion of its fleet, by placing an order for a further 140 737-800 aircraft with Boeing, comprising of a firm order for 70, together with options for a further 70.

"An indication of the size of this expansion is the fact that even though this brings the airline's firm orders to a total of 225 737-800's, only 80 of these are currently flying, 96 will be operational by the end of 2005, with the remaining 129 being delivered over the following six years. The additional 70 options means that in addition to the 225 firm orders, the airline also has options for a further 193 aircraft," he said.

Mr Draper also outlined another component of the Boeing deal winglet modifications. These are installed at the end of the aircraft's wings to improve its aerodynamics and will be installed across Ryanair's fleet.

"This is expected to reduce the aircraft's fuel consumption by between 2% and 4%, which is a significant saving as fuel now represents 28% of the airline's total cost base. A new discounted price will also apply to the remaining Boeing aircraft being delivered this year from the previous Boeing order," Mr Draper said.

Mr Draper said the fleet expansion assumes a doubling of Ryanair's current annual passengers carried of €34 million to €70 million by 2012.