Ryanair shares rise after 30% price dive

RYANAIR’S share price finished up 10c yesterday following its near 30% drop on Wednesday.

Shares were up more than 2% on Wednesday’s close at €4.85.

However, they fell 20c to €4.50 early in the day before tacking back up to €4.85.

Dolmen Butler Briscoe researcher Stuart Draper, gave the shares a Buy recommendation yesterday and said they still have upside.

However, he cut his share price target from €8 to €7, and he warned that the markets could undermine the shares further due to the uncertainty surrounding the Charleroi deal and the growth of competition.

“Our view is that even though there will be a lot of uncertainty in relation to both yield erosion and the Cherleroi ruling, the Ryanair business model will ultimately survive both threats and will return to strong profit growth.”

International analysts Citigroup Smith Barney, which moved the stock from medium to high risk last month, has retained that stance after Wednesday’s third-quarter announcement that said profits for the year will be 10% less than the 2003 outturn.

Citigroup, nonetheless, also rates the stock as a Buy.

Up to December Citigroup had Ryanair in the medium risk category, but despite the higher risk rating, it says the stock should hit €8.50 over the 12-month period as earnings visibility becomes clearer.

However, the risk factors justifying the stock as high risk are numerous.

They are:

* Cyclicality, overcapacity, fuel prices war/ terrorism.

* Aggressive capacity growth and competition could affect fares prices.

* The recent order for new aircraft increases financial risk and forces the group into the market for new funding.

* The group’s negative image among the media due to its “arrogance based on success.”

The analysts went on to say that the overhang of shares, including the 5.9% stake of chief executive Michael O’Leary and the 8.9% of the Ryan family, were factors to consider.

But the Citigroup assessment was very positive on Ryanair.

“We believe Ryanair has the strongest business model for a European airline in terms of its lowest cost advantage, continued growth prospects and strong balance sheet.” And while it is inevitable that the pace of growth has to slow down, the brokers argue those factors have already been taken into account.

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