Ryanair shares 'could have further to fall'
11.11.07
It has been a dismal nine months for Ryanair shareholders since last February's share split, the Irish Independent reports. The shares traded at €6 on the first day after the split, but had fallen to just €5.17 at the end of last week, a drop of almost 14 percent.
At the current share price Ryanair has a market value of €7.7bn. Strip out the €350m value of its 29 percent Aer Lingus stake and you have a company that will produce pre-tax profits of almost €500m in the current financial year for just €7.3bn. For a company with Ryanair's growth record, the newspaper says 'that looks cheap'.
However, it cautions investors to look again. Crude oil prices finished last week at almost $93 a barrel, down from highs of almost $100. As aviation fuel is one of Ryanair's main costs, no amount of hedging - and it is only 10 percent hedged for its next financial year - can protect the airline from the pain of soaring oil prices.
Last week Ryanair announced its half-year results for the six months to the end of September. These showed that Ryanair's fuel bill had leaped to €393m, up almost 17 percent on the same period last year.
While Ryanair's fuel bill has fallen from 38 percent to 35 percent of its total operating costs over the past year, there is a limit to how far the airline can cut costs. If, as seems likely, high oil prices are with us for the foreseeable future then Ryanair's fuel bill is going to stay at or over 35 percent of total operating costs.
However, it isn't just the direct impact that high oil prices will have on Ryanair's bottom line. The indirect effects are likely to be far more damaging. With inflation picking up and a global recession looking increasingly probable, consumers' disposable incomes are likely to be squeezed.
If consumers are watching our pennies, then those cheap weekend breaks in Paris or Barcelona will be among the first things we will cut back on. And that is very bad news for Ryanair and the other budget airlines.
The newspaper concludes: 'Unless you reckon that oil prices are set to tumble, then Ryanair shares are still expensive, even at the current price.' We agree.
The world's greatest living investor, Warren Buffett once said: 'If I'd been at Kitty Hawk in 1903 when Orville Wright took off, I would have been farsighted enough, and public-spirited enough - I owed this to future capitalists - to shoot him down.'
Add to: del.icio.us | Digg it | Newsvine | NowPublic | Reddit
To book a stansted airport hotels or stansted airport parking at the lowest price, click on these links to two great stansted airport parking and stansted airport hotels price comparison pages.
