After the company reported results, we will continue maintaining our price target of €21 on the stock. Most importantly, we are comfortable with the positions we hold in our funds.

About the Company

Ryanair is headquartered in Swords, a suburb of Dublin, Ireland, with its primary operational bases at Dublin and London Stansted Airports. In 2016, Ryanair was the largest European airline by scheduled passengers flown, and carried more international passengers than any other airline.

Valuation
With consensus earnings per share expected to come in at €1.26 in 2018 and using a PE multiple of 16x, we expect the price of Ryanair shares to move towards the €20 level. This means a potential 12% capital upside. I would also like to stress that an EPS of €1.26 is conservative and we expect the Company to report better results. If you look at what other analysts are saying (eg Barclays) they are forecasting earnings of €1.34/ share which would result in a Price Target of €21.

Investment Rationale
Nothing has changed going forward and we continue to believe this airline is well positioned to benefit from future growth. At the current price, we see potential upside of 12%.

Something else which is worth noting is that we have not only seeing companies maintain their positive outlook and price target on this stock, but we have also seen analysts (such as HSBC) change their recommendation from a hold to a buy. Despite having flagged potential price wars in certain airports, management did not change the outlook for the rest of the year.

Main reasons for our buy recommendation on the stock are as follows:

• We continue to favour this industry though with a bias to low-cost carriers over legacy carriers (example Lufthansa, Air France etc.)
• We like Ryanair because of its low-cost base, superior growth prospects, and strong balance sheet
• In particular, we are positive on RYA given the growth prospects present in its major markets and expansive order book through 2024
• The load factor active, yield-passive strategy has secured record utilization in recent years, levels which we believe are likely to be defended through ongoing commitment to this pricing philosophy.
• Expansion into primary airports has proven successful thus far
• We see long-term upside potential to our base case from higher margin contributions from upgraded ancillary revenue growth (i.e. income coming from other sources apart from airline tickets e.g. sales during flights etc.) as well as monetization of expanding market share
• Ryanair’s interest to take over Alitalia proves the company’s commitment to future growth

Risks

• The main risk at this point is increased competition with lower oil prices resulting in a price war. However, we expect this to be a short term issue. We also believe that Ryanair is best positioned to emerge out of a price war especially when competing against legacy carriers.

Conclusion
Ryanair's strategic transformation may have already doubled its profitability and share price but we believe the best is yet to come. Positive economic growth, potential to increase prices and market share will all contribute to increased margins going forward. We believe Ryanair should form part of a well-diversified portfolio.

Disclaimer: This article was issued by Kristian Camenzuli, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.