Liams Last Post : Ryanair slips on an upgrade , Markets focussed on QE and this week.

Good Afternoon ,

 

 

The day began with Ryanair reporting another very good set of quarterly numbers and with the numbers came an upgrade to guidance as well as what is now the regular dose of caution re future earnings visibility. The market was not impressed with the upgraded guidance.  The market is grappling with the evolution of the Ryanair strategy in the absence of a fresh aircraft deal with a significant slowdown in the rate of Passenger growth. Without a fresh aircraft deal , the fleet size will grow by about 20 aircraft in each of the next two years with total passenger numbers rising from a year end target of 73.5m to o85m over the next two years.

Ryanair delivered a 17% increase in half year Net Profit to €452m .Average fares rose by 12% to €44 in line with a 12% sector length increase as new routes and bases at Faro, Malaga and Malta performed well. Airport unit costs fell-3% during the half year.  Unit costs increased by 13% primarily due to the 12% growth in sector length and higher fuel costs.  Non Fuel Unit costs rose by 4%, however sector length adjusted they fell by 8%.  Ryanair are now 90% hedged for fuel for FY11 at $730 per tonne and 60% hedged for FY12 at $760 per tonne.  Dollar cover is now 60% hedged for FY12 at €/$ 1.35 versus €/$ 1.40 for FY11. Cash on hand at Sept 30^th, rose by €212m to €3.026bln pre the payment of the €500m one-off special dividend. The Outlook statement was typically cautious as Ryanair always say they have little visibility on Quarterly yields.  However based on Q3 forward bookings Ryanair did upgrade guidance  and suggested that winter (H2) yields will be slightly better than previously forecast. Ryanair now expect the full year yield increase to be at the upper end of the +5% to +10% range previously guided, i.e. close to 10% and full year Net Profit will exceed the upper end of the previous forecast range (€350m to €375m) and will now finish (subject to Q4 yields) within a range of €380m to €400m. 

The stock fell by -4% at one stage and settled down with a loss for the day of -3.6%. I believe that the stock had had a decent run into the numbers and it was no surprise to see some ground surrendered today. The pullback does provide a window of opportunity to add to positions. I personally believe that the next period will see surprisingly strong yield performance from Ryanair as the larger airports compete for Ryanair business and their traffic flows. Ryanair also know that they can achieve higher yields at key major airports which will sustain the growth of profitability.  There was no mention of any new aircraft fleet order  despite the occasional rumours during the quarter that one was imminent.  In terms of valuation I believe that a P/E multiple of about 10x is not expensive for Ryanair and I continue to think this should be bought.

AIB held its EGM to approve as expected the sale of its stake in M&T .  The new chairman did have some news that it is to put on hold plans to put up for sale plans to sell its UK businesses after failing to get a satisfactory offer.

U.S. stocks saw early gains after the The ISM said its index of factory activity rose to 56.9% in October from 54.4% in September.The consensus was for the ISM to decline to 54.0%.

The US mid-term elections is on Tuesday, followed by the FOMC meeting on Wednesday. $500 bn seems to be about the consensus for the much expected Quantitative Easing programme of Treasury purchases in this tranche though there are expectations that there may be several more tranches over time.

There are central bank meetings in Japan , Australian and the UK as well as the ECB this week regardless of the FOMC decision.  The BOE, ECB and BOJ are all scheduled to meet soon after the FOMC. The market is focussed on the FOMC and the reaction is eagerly anticipated…

Have a good evening

Liam

 

 

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Liam Boggan

　

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