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City broker lifts Ryanair on surprise guidance upgrade, Thomas Cook's demise boosts airfares

Ryanair is driven higher by stronger than expected Christmas bookings, better averages prices and a sector-wide demand-vs-supply boost in the wake of Thomas Cook's collapse.

Ryanair Holdings plc - City broker lifts Ryanair on surprise guidance upgrade, Thomas Cook's demise boosts airfares

Liberum Capital has significantly upgraded its price target for Ryanair Holdings plc (LON:RYA) after the budget European airline lifted its own profit guidance on “strong” Christmas trading.

Analyst Gerald Khoo noted that Ryanair, and the sector generally, has been boosted by the demise of Thomas Cook – which was positive for the balance of supply and demand, and, has redistributed market share.

“While the vacuum left by Thomas Cook is likely to be filled by the summer by the airlines that have acquired its slots at capacity constrained airports, the reallocation of capacity to stronger and more financially rational airlines is still positive,” he said in a note.

Khoo acknowledged the continuing problems connected to the Boeing 737 MAX incidents, and that those aircrafts remain grounded, though highlighted positive pricing dynamics in the sector.

READ: Ryanair shares rise as it upgrades profit guidance thanks to strong Christmas bookings

“Our analysis of airline schedules suggests that European short haul capacity is likely to be flat this winter,” he said.

“The data for Summer 2020 is still not reliable, and we would doubt that an outright fall in capacity is likely. Nonetheless, it does seem likely that industry capacity growth will remain restrained. This points to a supportive unit revenue environment, so long as demand holds up.”

Zeroing in specifically on Ryanair, Liberum repeated a ‘buy’ recommendation and lifted its price target to €19.00 from €12.50 per share.

Khoo said: “Our previous forecasts were slightly below the midpoint of management’s old guidance range, so our forecast change is larger in percentage terms as we move to the middle of the new guidance range, which is where management expects the outturn to most likely be.

“The overwhelming bulk of the change to our estimates comes from better revenue, with minor adjustments to other assumptions.

“This drops straight to the bottom line, and is a reminder of the higher operational leverage of the airline industry, and the sensitivity to small changes in assumptions, even for an airline as profitable as Ryanair.”

Ryanair Holdings upgrades profit guidance thanks to strong Christmas

In Friday’s early deals Ryanair shares rose by 8.73% - to trade at €16.56 – as its key Christmas trading update delivered a surprise upgrade to profit guidance.

Bolstered by higher than expected bookings and yields, Ryanair expects its financial results will show slightly better than expected average fares through the final three months of its financial year.

Annual group traffic is at the same time seen growing to 154mln, above prior guidance of 153mln.

Ryanair now raises its full year guidance for profit after tax to €950mln to €1.05bn, from a previous range of €800m to €900mln.

“On the basis of current trading, Ryanair expects to finish close to the mid-point of this new range,” the airline said in a statement.

Ryanair is due to report results for its third quarter - the three months ended 31 December - on 3 February.

Austrian unit dented by “intense competition” with Lufthansa

Also in Friday’s statement, Ryanair noted that Austrian subsidiary Laudamotion continued to underperform with lower than expected fares over the Christmas period, despite strong traffic and high load factors.

The softer pricing was driven by intense price competition as Lufthansa subsidiaries sold seats below cost.

Ryanair said its Lauda business is set to carry 6.5mln passengers in the full year, but fares are expected to be €15 below budget consequently it sees the unit’s net loss for the year widen to €90mln from prior guidance under €80mln.

Quick facts: Ryanair Holdings plc

Price: 15.675 EUR

LSE:RYA
Market: LSE
Market Cap: €17.25 billion
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