Liams Last Post : Ryanair the debate of the day...Cyclicality upon us...

Good Afternoon ,

 

Market Strength from Friday did not carry over into Mondays trade and though there was little news , there was plenty of noteworthy stuff going on in Ireland with Merrion publishing a note on Ryanair , re-iterating our cautious view and the Hold recommendation , Another broker in Dublin , on the other hand also published a note on Ryanair today returning the stock to its conviction list for 2010. The other note followed the initiation by a UK broker last week with quite bullish assumptions. As one person said to me that their blues skies scenario is the central case.

 

I have to say I believe the John Mattimoe position and I agree with his view that Ryanair is transitioning to a cyclical company and that the issue is how much the market de-rates the multiple paid for a cyclical earnings

 

. I know that there is a battle of perceptions being waged in the share price which has been a relative basket case in terms of performance.  I think there is general agreement that the business is in transition....and that the only real difference is in emphasis with the DAVY note focussing on the cashflow generation potential of the business whereas the Merrion note looks at the valuation rating and the Merrion Note has some detailed modelling of the continued growth strategy scenario or the constrained growth scenario. The constrained growth scenario shows profit per passenger rising faster to our assumption of Eur11.02 in both scenarios by 2018.  Our conclusion is that this is a long way out and that Ryanair will be the dominant player in the low fares sector with the sector maturing too as it grows to 30% of the total market. In short our view is that the cyclical nature of their earnings at these levels of market penetration will be attributes a lower earnings multiple.

 

I am sticking with Johns view and it is interesting as Ryanair has done nothing except execute its strategy flawlessly but the market cannot really decide how to call what happens next. My gut feeling is that the bulls will be disappointed over time but that the stock will remain resilient while there is no obvious really bearish case.

 

 Stock like Glue stuck within a very narrow range today...down -0.08%

 

Quiet day... most markets recovered in the afternoon , the USA futures were showing negative at the opening but the market opened up and has held itself in positive territory....Ben Bernanke speech will set the tone for the evening.

 

 

Have a good evening.

 

Liam

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

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