Ryanair
Airlines
Results season to date: ULCC’s 2 – others 0 Equity Research 25 Jul 2016
FY17 guidance unchanged Recommendation BUY Ryanair has followed Wizz from last week in leaving its FY17 guidance unchanged. Unchanged Visibility over the all important September quarter is clearer than it was for Price Target €18.15 easyJet, with 75% of its expected bookings taken as against easyJet’s 65%, giving from €16.60 RYA the ability to guide Q2 yields down ~6% vs our current forecast of -7.4%.
Key Stock Data Q1 highlights why ULCC’s win in tough times Ticker: RYA ID Q1 NPAT came in 2.6% better than forecast at €256m vs our €249m estimate. Closing Price: €10.91 While yields were down 10.3% yoy (GBY est. -10.6%), pax numbers were up Market Cap / EV €14,061 / €14,532.6m 11.1%. Additionally, ex-fuel costs/pax were down 3.5% yoy (GBY est. -2.7%) Average Daily Volume 2.033m reflecting better than expected airport and route charges. RYA’s model works. Free Float 95%
52 Wk Hi/Lo €15.35 / €10.46
FY17 guidance unchanged, although we move our number up Price Perf (1m/3m/12m) -19.2% / -16.2% / -12.8% Other than adding 1m pax to its target, now 117m for the year, and firming up its
Q2 yield target, Ryanair kept its other headline numbers unchanged, with H2 Ryanair Vs Factset Europe Airlines yields at -10-12% and ex-fuel costs -1%. We have adjusted our Q2 yield to -6% 16 and lifted our FY17 NPAT from €1,342m to €1,375m. FY18 is now €1,417m vs 15 14 €1,326m. This moves our target price on our FY18 base from €16.60 to €18.15. 13 12 € 11 Leading not following 10 9 RYA continues to be proactive in terms of yield and growth. It intends to cut 8 7 Stansted frequencies over the 2016/17 winter season, with a greater focus on 6 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 intra-Euro growth. On current data, it is scheduled to grow Germany by 28% yoy Ryanair Factset Europe Airlines
Source: Factset in Q3 to December, while its CEE network is up 24% vs overall growth of 10%.
Financial & Valuation Summary International Comparative Ratings
Headline Figures Mar 16a Mar 17f Mar 18f Mar 19f Price Cal. Adj ROCE Cal. EV/EBITDAR lc 16f 17f 16f 17f Revenues (€m) 6,536 6,683 6,890 7,533 Ryanair 10.91 33% 30% 6.6 6.0 EBITDAR (€m) 2,003 2,242 2,359 2,602 Adj EPS (c) 92.1 106.0 109.2 121.4 AF-KLM 5.39 6% 6% 4.1 4.1
DPS (c) - - - - easyJet 10.27 15% 15% 5.6 5.7
Valuation Lufthansa 10.31 5% 5% 5.0 5.1
EV / EBITDAR 9.0x 6.5x 5.8x 4.9x P/E 14.2x 10.3x 10.0x 9.0x Free Cash Flow Yield 3.6% 4.3% 6.1% 7.5% Price / Adj Cap Employed 4.3x 2.9x 2.6x 2.4x Dividend Yield - - - -
Balance Sheet Strength
Adj Interest Cover (EBITDAR) 37.6x 28.3x 30.7x 33.9x Debt / Equity -8.7% -8.1% -20.8% -30.6% Analysts
Net Debt / EBITDAe -0.2x -0.2x -0.5x -0.9x Mark Simpson Profitability +353-1-641 0478 [email protected]
EBITDAR Margin 30.6% 33.6% 34.2% 34.5% Jack Diskin Adj ROCE 31.1% 33.1% 29.6% 29.4% +353-1-641 9193 ROE 32.5% 34.3% 27.6% 23.8% [email protected]
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Ryanair
Share Price €10.90 Mkt Cap (m) €14,061 Sector Airlines Analyst Mark Simpson Recommendation Buy Avg Daily Volume 2.033m Ticker RYA ID Email [email protected] Price Target €18.15 Free float 95% Web Site www.ryanair.com Tel +353-1-641 0478
Value Drivers Mar 15a Mar 16a Mar 17f Mar 18f Mar 19f Financial Statements Mar 15a Mar 16a Mar 17f Mar 18f Mar 19f
Key Operating Metrics Profit & Loss (€m) Passengers (m) 90.5 106.4 117.4 128.4 139.0 Passengers 4,260 4,967 4,989 5,079 5,536 Seat Capacity (m) 102.5 114.5 125.5 137.2 148.5 Cargo - - - - - Load factor (%) 88.3% 92.9% 93.5% 93.6% 93.6% Ancillary/Others 1,394 1,569 1,695 1,811 1,997 Traffic Revenue per pax 62.5 61.4 56.9 53.7 54.2 Sales 5,654 6,536 6,683 6,890 7,533 Passenger Rev/Seat 41.55 43.37 39.76 37.01 37.27 Fuel -1,992 -2,071 -1,804 -1,717 -1,943 Ancillary/Other Rev per seat 13.59 13.70 13.50 13.20 13.44 Labour costs -503 -585 -639 -700 -763 Total Rev/Seat 55.14 57.06 53.26 50.21 50.72 Airport & route costs -1,260 -1,454 -1,526 -1,627 -1,712 Op. Cost/Seat -44.97 -44.31 -40.18 -37.92 -38.15 Engineering costs -135 -130 -154 -164 -174 ex-Fuel Cost/Seat -25.54 -26.23 -25.80 -25.41 -25.07 Other operating costs -234 -293 -319 -323 -339 US$/t Hedged fuel cost 950 898 622 496 - EBITDAR 1,530 2,003 2,242 2,359 2,602 % Hedged 90% 92% 95% 55% - Lease Costs -109 -115 -111 -118 -117 US$/€ spot fuel cost 815 452 470 500 530 Depreciation & amortisation -378 -427 -490 -554 -618 FX: US$/€ 1.33 1.31 1.18 1.10 1.10 EBIT 1,043 1,460 1,641 1,687 1,866 FX: Stg£/€ 1.27 1.33 1.16 1.06 1.05 Net Financial Charge -56 -53 -79 -77 -77 Other Financial Items -4 -3 - - - Per Share Data - c PBT 982 1,404 1,562 1,610 1,790 Adj EPS 62.5 92.1 106.0 109.2 121.4 Tax -116 -163 -187 -193 -215 DPS 37.6 - - - - Minority Interests - - - - - Dividend cover 1.7x n/m n/m n/m n/m Discontinued Operations - - - - - No. of Shares (m) 1,385 1,341 1,289 1,289 1,289 Exceptional Items - 318 - - - Momentum PAT 867 1,559 1,375 1,417 1,575 Sales 12.3% 15.6% 2.3% 3.1% 9.3% EBITDAR 37.6% 30.9% 12.0% 5.2% 10.3% NOPAT 952 1,324 1,477 1,519 1,676 EBIT 58.4% 40.0% 12.4% 2.8% 10.6% Cashflow Statement (€m) Adj EPS 72.9% 47.4% 15.1% 3.1% 11.2% EBIT 1,043 1,460 1,641 1,687 1,866 DPS n/a -100.0% n/a n/a n/a Depeciation 378 427 490 554 618 Free Cashflow 82.2% -29.9% -4.2% 41.6% 23.0% Change in Working Capital 372 167 41 68 211 NAV 28.0% -8.0% 27.7% 32.1% 27.0% Other Operating Cashflows 42 -25 1 1 1 Profitability Metrics Operating Cashflow 1,834 2,030 2,173 2,309 2,696 EBITDAR margin 27.1% 30.6% 33.6% 34.2% 34.5% Net Interest -56 -53 -79 -77 -77 EBIT margin 18.4% 22.3% 24.6% 24.5% 24.8% Tax Paid -88 -128 -187 -193 -215 Adj ROCE 23.0% 31.1% 33.1% 29.6% 29.4% Capex -789 -1,218 -1,282 -1,183 -1,351 ROE 23.7% 32.5% 34.3% 27.6% 23.8% Other Items - - -20 - - - Asset Turnover - x 1.7x 1.9x 1.8x 1.6x 1.5x Free Cashflow 901 631 605 857 1,054 - PAT Margin - % 15.3% 19.0% 20.6% 20.6% 20.9% Dividends Paid -520 - - - - - Leverage - x 0.9x 0.9x 0.9x 0.8x 0.7x Acquisitions - - - - - Disposals - 398 - - - Balance Sheet Metrics Changes in Share Cap -98 -1,103 -557 - - Debt / Equity -9.0% -8.7% -8.1% -20.8% -30.6% FX Translation - - - - - Adj Net Debt / EBITDAR 0.3x 0.2x 0.2x -0.2x -0.6x Other -78 21 - - - Adj Interest Cover (EBITDAR) 27.2x 37.6x 28.3x 30.7x 33.9x Mvt in Net Debt 205 -53 48 857 1,054 Capex / Depreciation 208.8% 285.0% 261.6% 213.6% 218.4% Balance Sheet (€m) Cashflow Metrics Net Tangible Assets 5,471 6,262 7,073 7,702 8,435 Operating Cashflow per share 132.5 151.3 168.6 179.1 209.1 Goodwill - - - - - Free Cashflow per share 65.1 47.1 46.9 66.4 81.7 Other Net Intangible Assets 47 47 47 47 47 Cashflow Conversion 100.8% 49.4% 44.0% 60.5% 66.9% Financial Assets 926 89 89 89 89 FCF Yield (Mkt Cap) 8.0% 3.6% 4.3% 6.1% 7.5% Total Fixed Assets 6,443 6,397 7,209 7,838 8,570 Enterprise Value Stock 2 3 3 3 4 Market Capitalisation 11,311 17,508 14,061 14,061 14,061 Debtors 60 66 68 70 76 Capitalised Leases 738 786 775 827 819 Creditors -197 -231 -229 -236 -257 Net Debt -262 -338 -359 -1,216 -2,270 Working Capital -134 -161 -158 -163 -177 Pension 1 - - - - Other Liabilities -2,638 -2,950 -2,994 -3,057 -3,254 Minorities - - - - - Capital Employed 3,671 3,285 4,056 4,617 5,139 Adj Enterprise Value 11,788 17,956 14,477 13,672 12,610 Shareholders Funds 4,035 3,597 4,415 5,833 7,408 Valuation Net Debt -364 -312 -359 -1,216 -2,270 PE 13.1x 14.2x 10.3x 10.0x 9.0x Minorities - - - - - EV / EBITDAR 7.7x 9.0x 6.5x 5.8x 4.9x Net Pension - - - - - Dividend Yield 4.6% - - - - Capital Employed 3,671 3,285 4,056 4,617 5,139 Price / NAV 2.8x 4.9x 3.2x 2.4x 1.9x EV / Adj Cap Employed 2.5x 4.3x 2.9x 2.6x 2.4x Capitalised Leases 766 806 775 827 819 Price / Adj Cap Employed 2.5x 4.3x 2.9x 2.6x 2.4x Adj Capital Employed 4,437 4,091 4,831 5,444 5,957 Share Price Performance 1mth 3mth 6mth YTD 12mth Key Dates
Share Price Movement -19.2% -16.2% -24.3% -27.3% -12.8% Last Report 14/07/2016 Ex Final Div n/a vs Factset Europe Airlines 4.2% 10.2% 6.2% 8.4% 20.7% Forecast Change 25/07/2016 Ex Interim Div n/a Next Update n/a
Page 2 25 Jul. 16 Goodbody Ryanair
Q117 headline of unchanged guidance highlights ULCC advantage Ryanair, as with Wizz Air last week, has left FY17 guidance to March unchanged at €1,375-1,425m. This is after delivery Q1 profits of €256m, up 4% yoy, suggesting that, at the mid-point of profit guidance, profit growth for the remaining 9mths would be 15% yoy.
Q1 passengers grew 11.1% yoy to 31.1m, with load factor up 1.7ppt to 93.7%. Fares were down 10.3% at €39.99/pax, which was slightly more than our forecast for a 10.6% fall. Ancillary revenue per pax was better than we had forecast at €14.25, down 1.4% yoy against our -2.7% forecast. Importantly, ex-fuel costs per pax were €27.72/pax, down 3.5% vs. our forecast of a -90bp decline. This performance underpinned the profit growth in the quarter and supports Ryanair’s FY17 guidance that ex-fuel unit costs can fall by 1ppt yoy. As for the split of costs, we were too low on fuel (bill came in €21m higher than forecast) and too high on ex-fuel costs, with airport and route charges being a notable success (€14m lower than forecast).
Q117 results better on both revenues and ex-fuel costs
Q1 2016 Q1 2017 Q117 vs Q116 GBY forecast Outrun vs €/pax €/pax Ch yoy €/pax forecast Seats (m) 30.43 33.20 9.1% 33.20
Passengers (m) 28.00 31.11 11.1% 31.11
Load factor 92.0% 93.7% 1.7% 93.7%
Average passenger fare 44.58 39.99 -10.3% 39.88 0.3% Ancillary revenue per pax 14.45 14.25 -1.4% 14.06 1.4% Total revenue per pax 59.03 54.24 -8.1% 53.94 0.6% Total revenue per seat 54.31 50.83 -6.4% 50.54 0.6%
Cost per pax (excl fuel) 28.73 27.72 -3.5% 28.47 -2.7% Cost per pax (incl fuel) 48.73 44.38 -8.9% 44.44 -0.1%
€m €m €m
Scheduled revenue 1,248 1,244 -0.3% 1,241 0.3% Ancillary revenue 405 443 9.6% 437 1.4% Total operating revenues 1,653 1,687 2.1% 1,678 0.6% Operating expenses
Staff costs (152) (166) 9.2% (168) -1.5% Depreciation (excl accelerated) (106) (126) 18.3% (130) -3.1% Fuel & oil (560) (518) -7.4% (497) 4.4% Maintenance, materials and (32) (41) 30.3% (34) 21.5% repairs Aircraft rentals (36) (23) -37.2% (31) -27.5% Route charges (172) (178) 3.5% (185) -4.0% Airport & handling charges (232) (241) 4.2% (248) -2.6% Marketing & other (75) (88) 16.8% (90) -2.2% Total operating expenses (1,364) (1,381) 1.2% (1,383) -0.1%
Operating profit 288 307 6.4% 295 3.8% Operating margin 17.5% 18.2% 0.7% 17.6% 0.6%
Other income/(expenses) (11) (20) 91.5% (12) 63.2% Pretax 278 287 3.1% 283 1.2% Taxation (33) (31) -5.2% (34) -8.7% NPAT 245 256 4.2% 249 2.6% Net profit margin 14.8% 15.1% 0.3% 14.8% 0.3%
Source: Goodbody
25 Jul. 16 Page 3 Goodbody Ryanair
FY17 guidance positive The market has rightly liked what they read with Q2 yield guidance of down ‘at least’ 6% being seen as a positive against easyJet’s comments last week. We have adjusted our -7.4% forecast to this number. With regards H2 yields, Ryanair has left guidance unchanged at a decline between 10-12%; we have adopted -11% for each quarter.
Other than firming up the Q2 yield picture (with 75% of expected sales now booked), Ryanair has also added an additional 1m pax to its full year target to now stand at 117m, up from last year’s 106m. We were already at 117m but add 0.35m more passengers to our forecast, assuming that loads in H2 are 50bp better yoy at an average of 92.8% (giving 93.5% for the year as against a 93% guidance).
This has led to the following changes in our revenue forecasts, but with FY17 total revenue per pax 1.3% up on our previous forecast and FY18 1.9%. With that said, we are still expecting FY18 yields to be down on the current year by 5.7% (was 6.3%).
Better Q1 and FY guidance underpins our yield revisions to the upside
Q117 actual Q217 Q317 Q417 FY17f FY18f Jun-16 Sept-16 Dec-16 Mar-17 Fares €/pax was 39.88 61.30 35.22 27.70 42.12 38.92 Now 39.99 62.24 35.29 28.16 42.50 39.56 change 0.3% 1.5% 0.2% 1.7% 0.9% 1.6% Ancillary/Pax € was 14.06 12.51 12.94 17.42 14.09 13.76 Now 14.25 12.95 13.27 17.86 14.44 14.11 change 1.4% 3.5% 2.6% 2.5% 2.5% 2.5% Rev/Pax € 53.94 73.80 48.17 45.12 56.21 52.68 Now 54.24 75.19 48.56 46.02 56.94 53.67 change 0.6% 1.9% 0.8% 2.0% 1.3% 1.9%
Source: Goodbody
Guidance for a greater focus on intra-EU, ex-UK growth as expected
In our previous post-Brexit sensitivity analysis we suggested that Ryanair would shrink its UK operations and promote growth across its non-UK operations. This was confirmed by Ryanair, which stated in its Q1 release that it will cut Stansted frequencies this winter. The table from our note ‘Updated Brexit sensitivity and Q117 preview’, July 14th, forecasts that this will drop FY17 capacity by 0.3% this year, while growing its core EU to EU by 13.9%.
RYA capacity forecast change – there isn’t one as we think RYA will take share in the EU
Dec Yr (Seats m) 2016 2017 2018 2019 2020 '17yoy '18yoy '19yoy UK to UK 1.9 1.9 1.9 1.9 1.8 0.6% 0.6% -0.4% UK to EU 43.8 43.6 43.9 43.7 43.0 -0.3% 0.6% -0.4% EU to EU 75.9 86.4 97.8 110.8 125.2 13.9% 13.2% 13.3% Other 3.6 3.8 3.9 4.1 4.3 5.0% 5.0% 5.0% Total 125.1 135.7 147.6 160.5 174.4 8.5% 8.7% 8.8% Goodbody forecast adjustment:
March Yr end FY16A FY17F FY18F FY19f
Implied March FY 114.5 127.8 138.7 150.8
Forecast was: 125.9 139.4 148.5
Is now: 125.9 139.4 148.5
Variance: 0% 0% 0%
Source: APEX, Goodbody
Page 4 25 Jul. 16 Goodbody Ryanair
Looking to where this growth might now focus, clearly Germany will be a primary market as Ryanair looks to move from a 5% market share to 20% plus over the next 4 years.
Germany a primary market to hit long-term pax forecasts, with Q317 capacity up 28% yoy
Destination (from Germany) Q317 seats Q317 seats Change % change Spain 0.87 1.04 0.17 20% UK 0.61 0.74 0.13 21% Italy 0.61 0.73 0.12 20% Bulgaria 0.00 0.10 0.10 3743% Belgium 0.07 0.15 0.07 103% Greece 0.08 0.12 0.04 47% France 0.01 0.03 0.02 207% Ireland 0.15 0.16 0.01 9% Lithuania 0.03 0.04 0.01 41% Poland 0.05 0.07 0.01 22% Slovakia 0.02 0.03 0.01 44% German domestic 0.15 0.16 0.00 3% Croatia 0.02 0.02 0.00 11% Latvia 0.07 0.07 0.00 1% Denmark 0.03 0.03 -0.00 -1% Estonia 0.01 0.01 -0.00 -8% Finland 0.01 0.00 -0.00 -47% Portugal 0.27 0.26 -0.01 -2% Morocco 0.07 0.07 -0.01 -11% Sweden 0.03 0.02 -0.01 -29% New markets (Hungary, Romania, Serbia) 0.23 0.23 Totals 3.18 4.08 0.90 28.1%
Source: Goodbody
Notable in the development of Germany are the new CEE routes being added, with this reflected across its network as it pushes capacity into this fast growth region.
CEE region a focus, with Q3 capacity forecast to be up 24% yoy
Origin Destination Q316 Seats Q317 Seats yoy Seat cha % change yoy New routes:
Bulgaria Italy 0.08
Bulgaria Spain 0.04
Bulgaria 5 other routes 0.08
Germany Romania 0.10
Germany Hungary 0.06
Germany 2 others 0.03
7 other country pairs (Romania 2, Serbia 2) 0.17 0.56
Existing growth routes:
United Kingdom, UK Poland 0.94 1.07 0.12 13% Italy Romania 0.10 0.17 0.07 67% Poland Poland 0.13 0.19 0.06 48% Poland Sweden 0.05 0.09 0.04 68% United Kingdom, UK Romania 0.07 0.11 0.04 50% Spain and Canary Islands Poland 0.18 0.21 0.03 17% Existing shrinking routes:
Norway Latvia 0.02 0.01 -0.01 -61% Italy Slovakia 0.05 0.04 -0.01 -23% Norway Poland 0.15 0.11 -0.04 -28% 63 other country pairs 2.39 2.51 0.12 5% Total of 90 country pairs 4.08 5.05 0.97 24%
Source: Goodbody
25 Jul. 16 Page 5 Goodbody Ryanair
Ryanair
Operational Overview
Ryanair is a low-cost, low-fares airline providing point-to-point services across the European short-haul air travel market. Operating from 84 European bases, it flies over 1,800 routes across 33 countries in Europe and expects to carry c.116m passengers in FY17. The carrier expects to finish FY17 operating a fleet of 380 Boeing 737-800s and delivers services off the lowest unit costs of any airline in Europe. Key target markets for growth in the next year include Germany and Spain. Its long- term ambition to take a 20% share of the German market could add over 20m passengers by 2020, while a 25% target share in Spain would add a further 10m.
Geographical Mix RevenuesPie Chart(FY15) 1 BK Divisional Mix Revenues (FY15)Pie Chart 2 BK
Ireland 11% Ancillary/Others 25%
UK 29%
Western Europe 60%
Scheduled Fares 75%
Source : Goodbody Source : Goodbody
Valuation & Methodology
We base our valuation on a 10 year view of returns on capital employed (ROCE) vs. the Price to Capital employed that the market has been willing to pay at various levels of ROCE. This relationship has an adjusted Rsq of 0.72 on a 10yr view, with each point of ROCE equating to 14.7 of P/CE multiple. At a 31.5% ROCE forecast for the current year, this equates to 4.8x capital employed or €18.15/share.
Risks
As with any airline, Ryanair is subject to a wide range of external pressure. Changes in oil prices can have a significant impact over time given that fuel costs account for 35% of total costs (FY17 estimates). Profits are also sensitive to FX rates, especially the US$/€ given that fuel, capital costs, depreciation and a proportion of maintenance costs are US$ denominate. However, for Ryanair, the impact of these changes tend to be substantially offset by hedging positions, with some 90% of fuel and FX fixed over a 1 to 2yr period (currently 2yrs). Other risks are generically exogenous, from the negative impact of terrorist attacks on short- term demand, ATC strikes and weather. Currently the market is assessing the impact of Brexit on the medium term demand picture, with this seen as a risk to UK GDO growth and demand; Ryanair's exposure to UK flows is circa 37% of its network.
Ryanair 12 mth fwd P/E Ryanair 12 mth fwd P/NAV
17 3.8
16 3.6
15 3.4 14 x x 3.2 13 3.0 12 2.8 11
10 2.6
9 2.4 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16
Ryanair 12 mth fwd P/E Avg Std+1 Std-1 Ryanair 12 mth fwd P/NAV Avg Std+1 Std-1 Source : Factset Source : Factset
Page 6 25 Jul. 16 Goodbody Ryanair
Issuer & Analyst Disclosures
Recommendation History
Current Rec: Date of First issue:
Buy 06/10/2014 Ryanair Previous Rec: Date of First issue:
N/R 27/05/2014
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Goodbody, Ballsbridge Park, Ballsbridge, Dublin 4, Ireland T (+353 1) 6670400 W www.goodbody.ie E [email protected] Page 8 25 Jul. 16