Share price soars as Ryanair raises profit target

A stronger-than-expected jump in passenger numbers for the first month of its winter schedule has prompted Ryanair to increase its full-year profit guidance for the third time this year.

The European short haul/low fares leader yesterday reported a 22% annualised jump in traffic figures for November, to 6.35m passengers. This led to the airline’s management setting a new profit target — for the 12 months to the end of next March — of between €810m and €830m.

At the beginning of last month, on the back of a strong set of first-half financial results, Ryanair increased its full-year profit guidance from a range of €620m-€650m to one of €750m-€770m. At the start of its current financial year, last April, the firm was forecasting profits of between €580m and €620m. Ryanair attributed its good early winter traffic showing to its ‘Always Getting Better’ customer programme, an expanded winter schedule and strong performances on new city pair routes.

“It now clearly appears that the third quarter will be profitable — we currently have a loss of €14.3m, with the swing factor in guidance being the fourth quarter in what we view will be a record year of profitability,” noted Stephen Furlong of Davy Stockbrokers yesterday.

Ryanair’s update, yesterday — which also included a jump in full-year passenger expectations from 89m to just over 90m customers — boosted its share price by nearly 8.5% to nearly €9.58, a record high for the stock.

Goodbody Stockbrokers, yesterday, upped its full-year share price target for Ryanair, from €10.40 to €11.

“Using the revised 90m+ passenger guidance and better load factors, which feeds through to unit cost gains, but keeping the mid-point price guidance of -4% year-on-year on fares for the third quarter and -8% for the fourth quarter, we have a revised net profit forecast of €842m or full-year 2015, up from €784m previously,” noted Goodbody’s Mark Simpson.

He added that a further upgrade to forecasts could be on the cards before the end of March.

“The statement ends by saying that the revised guidance is heavily reliant on bookings and yields in the fourth quarter. We have looked at a number of routes for January bookings and, in general, Ryanair standard fares are at a surprising premium to EasyJet’s, suggesting that there could be further upside to guidance before the year is out,” Mr Simpson said.

Ryanair’s traffic update, for November, also showed a load factor of 88%. This was 3% ahead of analyst expectations, while the 6.35m passenger figure was also well ahead of anticipation.

“The better volume should be helping unit costs, which were previously guided as being flat on an ex-fuel basis and down 4% including fuel. Average fare guidance has been for fares to fall between 3% and 5% in the third quarter and between 6% and 10% in the fourth quarter,” said Mr Furlong.

“We continue to rate Ryanair ‘outperform’, as it incrementally takes profitable market share and generates positive cash flow and it is clear that its business model improvements are working,” the Davy analyst added.

Last month, Ryanair said it had much improved visibility on forward bookings . It said its new business passenger service should gain real momentum as the winter season progresses.