Overstone International Value Fund on Ryanair Holdings plc
Thesis
Ryanair faces a weak pricing environment and increased fuel expenses, but the fund considers this turmoil potentially beneficial over the long run. Its debt-free balance sheet, largely owned aircraft fleet, and position as Europe's lowest-cost operator are advantages over indebted rivals. Competitors may struggle with rising financing and leasing costs, creating opportunities for consolidation. At 11 times normalized earnings, the market offers little credit for Ryanair's comparative strength.
“The market appears to give Ryanair little credit for its advantaged position, with the shares trading at just 11x normalised earnings.”
Key risks
- Fares fell 6% amid geopolitical and economic uncertainty.
- Unhedged jet fuel doubled to about $150 a barrel despite extensive hedging.
- Unit costs rose 5% and quarterly operating profits fell 37%.
- Disruption or shortages could keep passengers from booking.