2013 – The Great Irish Share Valuation Project (Part III)
Company: Ryanair Holdings
Prior Post: Here
Price: EUR 5.689
Last year, I was still mildly bullish on Ryanair, but also in the process of selling down an RYA position I held. Since then, the share’s out-performed my target price by just over 20%… But I don’t feel much regret: a) while RYA’s more defensive than most, airline stocks are inherently volatile – I demanded, quite rightly, a wide margin of safety to compensate, b) a year’s passed, I’m sure my current target will be that much higher, and c) I was generally pretty happy with the re-investment of any proceeds last year!
There’s little new to observe here – Ryanair remains a bloody awesome earnings machine! Current operating margin has been squeezed slightly by fuel costs, but at 14.2% it still deserves a 1.33 Price/Sales ratio. A positive debt adjustment is also appropriate, considering RYA’s currently sporting 10 times interest coverage & has a history of share buybacks & a special dividend in the past year. YTD earnings growth is at +12.5%, while last FY earnings growth was running at 25%+. Considering the potential for earnings volatility here, a 15 P/E is still pretty much the maximum I’m comfortable with (based on an estimated EUR 0.3875 EPS run-rate).
It’s been a long slow burn, but I suspect we’ll also finally see some kind of resolution re Ryanair’s long-standing stake & bid for Aer Lingus Group (AERL:ID) within, say, the next 15 months. I’m not suggesting Ryanair will necessarily be successful in its bid – in fact, I suspect the Irish government’s desperately casting ’round for any kind of white knight solution. This has nothing to do with consumer protection – I just don’t think any Irish politician, of any party, can stomach Michael O’Leary‘s obviously low opinion of them all…
Yes, things do get that bloody petty in government! But it does suggest some kind of realization for Ryanair’s 29.8% Aer Lingus stake – so let’s add that into our valuation. All in all, RYA now looks pretty fairly valued.