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Ryanair - stopping coverage

Sophie Lund-Yates, Equity Analyst | 19 November 2021 | A A A
Ryanair - stopping coverage

No recommendation

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: 1,057.50 | Buy: 1,079.50 | Change -5.25 (-0.49%)
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UK nationals have been barred from buying Ryanair shares since 1 January 2021, because of Brexit. As a result, we've stopped covering the company as part of our Share Research service.

Data and views below were correct at the time of original publication. This shouldn't be used to form an up-to-date picture of Ryanair's investment case.

Delisting announcement (19 November 2021)

Ryanair intends to delist from the London stock exchange. The group said the costs associated with being London-listed weren't justified given the low volume of trades. Instead, Ryanair will be single-listed on the Euronext Dublin exchange.

This comes after UK holders have been barred from buying Ryanair shares on the London stock exchange for some months.

View the latest Ryanair share price and how to deal

Our View

It's easy to get carried away with news of Ryanair removing its shares from the London stock exchange. But the reality is very little about the investment case is changing.

Guidance for losses this financial year has rattled Ryanair investors, confirming that recovery from the pandemic will likely take longer than expected. With plenty of uncertainty about the shape of the economic recovery, the eventual bill from the pandemic could yet be even higher than feared. However, there are some signs that Ryanair will emerge from the pandemic stronger than it went in.

New, more efficient planes have the potential to boost Ryanair's competitive edge on prices in the post pandemic world - and with carbon taxes likely to increase in the coming years that could be crucial. Meanwhile, new routes and fierce negotiations with airports could further reduce the group's cost base for years while also boosting its potential market. A balance sheet which is looking stronger every quarter is also taking pressure off the group - giving it some options even in a tougher environment.

However, there are short term challenges.

Capacity is creeping upwards as vaccines make travel within Europe more accessible. But passenger numbers are still far below pre-Covid levels - particularly in the UK. Ryanair's had to keep ticket prices low to keep customers despite the increased costs - like airport handling, fuel and wages - required to get more planes off the ground. Instead it's leaning heavily on sales of little extras - like reserved seating - to keep revenue numbers healthy.

The risks of this strategy can't be understated, but the rewards could be hefty if the recovery continues as planned. Ryanair's always operated on a volume-led approach, which gives the group power when it comes to negotiating new routes and breaking into hard-to-reach airports. This strategy could be even more fruitful as travel gains momentum and governments clamour for tourism revenue.

Ultimately Ryanair and the industry as a whole will remain under pressure as long as travel restrictions are in place. Ryanair's an early mover in the recovery, snapping up market share, and that could be a reason for long term optimism. It's just a shame that ownership rules prohibit UK investors from buying shares.

Ryanair key facts

  • Price/book ratio: 3.95
  • 10 year average Price/Book ratio: 3.22
  • Prospective dividend yield (next 12 months): 0.0%

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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First half results (1 November 2021)

Ryanair reported revenue in the first half of €2.2bn, up 83% year-on-year, as passenger numbers more than doubled. Despite good cost control the group remains loss making, with losses falling from €411m a year ago to €48m in the half.

The prohibition on UK nationals buying Ryanair shares remains in place. Given the reduction in London trading of Ryanair shares, the board are considering de-listing Ryanair shares from the London stock exchange.

While conditions remain highly uncertain the group now expects to report a full year loss of between €100m and €200m.

Ryanair passenger numbers rose from 17.1m last year to 39.1m in the first half of 2021. Load factor, which measures how full planes are, rose from 72% to 79%. However, average price per passenger fell 30% to €33 as the group needed to stimulate demand.

Ryanair's revenue recovery reflects particularly strong growth in ancillary revenues, up 128.7% year-on-year, as passengers increasingly opted for priority boarding and reserved seating. Geographically performance was strongest in Italy and Spain, where revenue rose 102.8% and 91.7% respectively, but lagged in the UK, which was up just 21.3% year-on-year.

Operating costs rose 63% to €2.2bn, reflecting the increase in activity as aircraft, airport & handling, route charges and fuel all increased. Slower cost growth together with higher load factor meant average cost per passenger (ex-fuel) rose to €38. The group expects to see further improvements over the next year.

The group continues to expand its network, with 560 new routes and 14 new bases announced for this winter and next summer. That's in addition to extensions on existing deals, negotiations to lower costs and introduction of recovery incentives. In June Ryanair took delivery of its first B737-8200 ''Gamechanger'' aircraft, with 65 expected to be in operation by next summer. These aircraft carry 4% more seats and consume 16% less fuel as well as cutting noise pollutions. As a result, they're both more cost effective and more environmentally friendly to operate.

Ryanair reported free cash during the half of €728.1m, up from a €1.3bn outflow last year. That primarily reflects an improved working capital position, as payment terms with suppliers improved. The airline reported net debt of €1.5bn, down from €2.3bn at the start of the year.

Find out more about Ryanair shares including how to invest

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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 for more information.

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