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Ryanair - operating just 20 flights per day

Emilie Stevens, Equity Analyst | 3 April 2020 | A A A
Ryanair - operating just 20 flights per day

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No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Ryanair Holdings Ordinary Shares EUR0.006

Sell: 15.39 | Buy: 15.41 | Change 0.06 (0.39%)
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Ryanair expects to report between €950m and €1,000m in profit for the year ending 31 March 2020. This is at the lower end of previous guidance.

Passenger numbers for March fell 48% due to the pandemic, and full year passengers rose 4% to 149m, instead of 154m expected. Ryanair is currently operating just 20 flights per day, compared with over 2,500 before the COVID-19 outbreak.

The shares were broadly flat following the announcement.

View the latest Ryanair share price and how to deal

Our view

Ryanair is a strong player, but airlines are a tough industry to be in at the best of times, and this feels like it could be the worst of times.

The COVID-19 outbreak has virtually cleared the skies of non-emergency flights. Ryanair is not alone in grounding its planes and looking to every available cost saving measure.

Since forming in the mid-80s it's kept costs in check by offering a no-frills service, but this approach is of little use when the fleet is grounded. Ryanair does have at least one advantage: it owns the majority of its planes outright, so lease payments are relatively limited.

The group also has relatively little debt, and currently has over EUR3.8bn of cash and cash equivalents. This liquidity buffer will be essential as the group deals with the coronavirus outbreak, but we don't know how low cash costs can go. It's therefore difficult to say with any certainty how long the group can sustain a prolonged shutdown for.

This lack of certainty is part of what has driven the group's shares down so far in recent weeks. If the group can weather the storm, then investors brave enough to stick it out might be rewarded, but it's too soon to call what will happen, and the price could fall further if things get worse.

Prior to today's update, the shares changed hands for 1.9 times book value, below the long run average. However, there's a chance book value could be written down in the near future, so investors should exercise caution when using backward looking valuation metrics at such a turbulent time.

Ryanair doesn't distribute a share of the profits through dividends, but has engaged in regular share buybacks. The ongoing EUR700m plan, of which EUR440m has been completed, has been suspended until further notice.

In our opinion, an investment in Ryanair, or any other airline, hinges on the length of the shutdowns and travel restrictions. If the fleet gets back in the air soon, then Ryanair will suffer a really nasty quarter or two. If the disruption persists, then the group may run out of cash and/or need a bailout. Neither of these options will be pleasant for shareholders. We think Ryanair is in a relatively strong position compared to some peers, but even it can't keep the fleet grounded for ever.

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COVID-19 update

As of 31 March, Ryanair had €3.8bn in cash and owned 77% of its fleet outright. To conserve cash Ryanair has frozen all recruitment and capital spending and is suspending share buybacks. In April and May all pay will be cut by 50%, including senior management.

Given the ongoing uncertainty, Ryanair will not be providing guidance for this coming year.

Find out more about Ryanair shares including how to invest

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.