2,L98C 2?2E FP - Ryanair · At present, our base case forecasts assume Ryanair’s load factor...
Transcript of 2,L98C 2?2E FP - Ryanair · At present, our base case forecasts assume Ryanair’s load factor...
Priced as of prior trading day's market close, EST (unless otherwise noted).
For Required Non-U.S. Analyst and Conflicts Disclosures, see page 11.
Ryanair Holdings PLC
Transport
November 4, 2015 Damian Brewer, +44 20 7653 4900; [email protected] 2
Competitive advantage is king Ryanair’s competitive advantages in operating costs, capital cost and process
management are being reinforced by its low pilot turnover rates (career
progression prospects) and a selling approach set to leap-frog competitors.
Despite signals of a fare war ahead for 2016, the ~€1bn net cash exiting cal Q3
leaves the company well positioned to gain in any skirmishes.
Key winning factors:
Competitive advantage is the king maker of airlines and we think the company
sees:
1. Low (relative) operating costs
Operating costs look secured at (on average) lower than competitors – kept at a
low level through high staff productivity, a young and pro-actively maintained fleet
and airport unit costs which continue (ex FX) to be flat to down – despite airport
cost inflation in general).
For 2015/16E, ex Fuel, the company sees unit costs falling ~1%/passenger (vs. flat
previously).
2. Financing costs – low rate and long term (7 years )
The low cost squared’ element of the company is that its debt costs are lower than
peers. Bonds have been issued at 1.125% to 1.875%, so not only are opex unit
costs low, but cost of finance is low. We think the company then enjoys sizeable
reductions to sticker price for new 737s.
The low (~12%) Irish tax rate also means EBIT conversion to the bottom line is far
better than peers that face higher cost of finance and tax rates.
3. Keeping it good – process detail is key to the customer and Ryanair
Low costs are a risk if quality dips too. However, the company continues to see a
daily micro-focus on each station’s operating performance (each is called out if
need be in a daily call), and careful management of ground handler contracts
(again micro measured to ensure staffing quality does not affect turnaround
punctuality). Overall, punctuality lifted over the summer.
Meanwhile, staff continue to gain from promotion opportunity due to company
growth – for example, for the pilots the opportunity for promotion to Captain
within 4-5 years is one potential attraction – added to the certainty of operating
location and working days (typically 5 on, 4 off).
We think this likely serves to reduce pilot turnover risks.
4. Process detail – what you sell and when you sell it:
myRyanair.com (see Exhibit 5) offers a further step change in both ease of
customer experience and likely conversion from looking to buying – and more
potential buying value when the decision has been made to buy.
Still in its infancy, once registered this turns previous 18 click buying to 3 click
buying. The aim is to remove having to say no to lots of add-ons and speed up the
buying, then use the secured basic purchase to offer adds-ons – then or at a more
useful point in the future (e.g. seat assignment can have a sweet spot a few days
Ryanair Holdings PLC
Transport
November 4, 2015 Damian Brewer, +44 20 7653 4900; [email protected] 3
before flying). What Ryanair is moving away from is best demonstrated by ba.com
– where passengers need to trawl through a deluge of pages of attempts to sell
hotels, cars, airport transfers, airport parking and tourist guided trips and
experiences just to book a basic flight (even when ‘flight only’ is ticked). Ryanair’s
goal is that easier buying should improve conversion and may even grab business
share from internet dinosaurs (like we think the ba.com website presently is.)
More tailored ancillary offers are also likely to improve upselling. We think the
company will also take a leaf from KLM’s playbook and target upselling at different
times (after the booking cost has been sunk and paid for). e.g., to offer Fast Track,
or seats assigned in the front of the plane say a couple of weeks before departure
(if not already bought), or targeted offers to bring non-users back to try again. The
full effect of this has yet to come
Fare differentials in the low fuel cost outlook – will they
stay the same? At present, our base case forecasts assume Ryanair’s load factor active/yield
passive approach means it ends up cutting fares in 2016 as competitors seek to
reap volume gains from (their) lower hedged fuel costs. We project with rev/pass
down almost 9% YoY in 2016/17E as fuel cost benefits are used to cut fare (we still
upgrade clean EPS ~6%).
However, with already lower fares (on average, but not always on a route/specific
flight) and likely accretive mix from upselling and the positive average fare mix
effect of better business flex product penetration (from a very low base) our
unit/rev outlook might, on outcome be too conservative.
There is a chance that if the company can fill the planes with a lower (than
present) fare differential to competitors, then our unit revenue and profit
assumption might be too bearish, beyond the impacts of likely short-lived
skirmishes (with usually higher cost airlines).
Sequential revenue vs growth – need a v bearish Q3, Q4
Our look (Exhibits 3 and 4) at Q3 and Q4 sequential unit revenue development vs
supply growth (in seats) suggests the company needs to deliver one of its worst
ever sequential unit revenue performances to deliver our forecasts (which are
higher than company outlook of ~€1,225m net profit pre Aer Lingus gain).
In other words, the profit outlook already seems to have room for (the start of) a
fare ware in winter/spring 2016. For 2015/16E we make a net profit (pre Aer
Lingus disposal) upgrade to €1284m (from €1213m) vs RYA goal up to €1225m
2015/16E.
Headline EPS rises 3.5%, but this includes €318m Aer Lingus gain, so excluding this
we see ~91c EPS for 2015/16E, 102c for 2016/17E.
Balance sheet looks war ready – and may have room to
accelerate post 2019 growth. Unadjusted Net cash at end Q3 was close to €1bn, or ~€0.6bn Aer Lingus adjusted.
Thus we see the company well-positioned, if need be, to sustain any fare war and
short term profit impacts this might bring.
Ryanair Holdings PLC
Transport
November 4, 2015 Damian Brewer, +44 20 7653 4900; [email protected] 4
In nutshell, we think short-term lower cash generation could be traded-through at
Ryanair.
Also notable to us is that after 11-12% pa fleet growth over 2015-2018, over 2019-
2024 this slows to ~6% pa (though the 197-seat 737max will mean seat growth is
faster).
This either implies room to accelerate share buy backs, or accelerate expansion
plans, or both. The planned net 127 frame fleet growth over 2019-2024 already
suggest most of the 737Max options get exercised, so retaining planned 737-800
disposals could be one way to amplify fleet expansion in a flexible way.
Outperform – PT lifts to €16.0 (was €15.5) The shares trade at 14.8x YA PER with ~14% 2015-2019E EPS CAGR (base case)
with 5-6% FCF yield, while YA EV/EBITDAR of 9.1x remains below 3 year trailing
average of 9.5x. EV/IC/RoIC/WACC is 0.89 2015/16E vs 10 year median of ~1.0 (so
does not recognize any growth in future value creation, we think).
Our scenarios based PT of €16 implies 16.5x YA PER vs 2014/15 exit levels at 17.8x,
for a company that has tended to beat (start of year) estimates by ~21% on
aggregate average over the last 10 years.
Exhibit 2: Forecast Change Summary, €m
€m 2015/16E
(old)
2015/16E
(new)
Chg 2016/17E
(old)
2016/17E
(new)
Chg 2017/18E
(old)
2017/18E
(new)
Chg
Passengers (m) 104.0 105.0 0.9% 110.4 117.5 6.4% 123.2 122.6 -0.4%
Chg in pass. 14.9% 16.0% 1.1% 6.1% 11.9% 5.7% 11.6% 4.4% -7.2%
RASM (cents) 7.22 7.29 0.9% 6.80 6.82 0.4% 6.71 6.78 1.1%
Chg RASM 1.8% 2.7% 0.9% -5.8% -6.4% -0.5% -1.3% -0.6% 0.7%
Total Revenues 6,457 6,517 0.9% 6,452 6,825 5.8% 7,102 7,022 -1.1%
Fuel cost 2,056 2,004 -2.5% 1,758 1,815 3.2% 1,895 1,820 -3.9%
Employee costs 578 600 3.9% 621 680 9.5% 700 712 1.7%
EBITDAR (adj'd) 1,953 2,041 4.5% 2,087 2,233 7.0% 2,270 2,296 1.1%
Op profit/(loss) 1,422 1,503 5.7% 1,538 1,676 9.0% 1,692 1,711 1.1%
PBT 1,692 1,774 4.9% 1,496 1,634 9.2% 1,660 1,677 1.0%
Net Profit 1,492 1,602 7.4% 1,320 1,441 9.2% 1,464 1,479 1.0%
RYA goal 1175-1225 ~1225 - - - - - - -
Pre Aer Lingus net profit 1,213 1,284 5.9% 1,320 1,441 9.2% 1,464 1,479 1.0%
EPS (basic, cents) 109.41 113.27 3.5% 96.78 101.91 5.3% 109.70 106.88 -2.6%
DPS (Euro) 0.00 0.00 - 0.38 0.37 - 0.00 0.00 -
Equity FCF 1,101 1,218 10.7% 755 1,067 41.4% 1,157 900 -22.2%
Net Debt/(Cash) (adj'd) -765 -464 -39.4% -1,046 -1,053 0.6% -1,803 -1,553 -13.9%
ND (adj'd)/EBITDAR -0.4x -0.2x - -0.5x -0.5x - -0.8x -0.7x -
Source: RBC Capital Markets estimates.
Ryanair Holdings PLC
Transport
November 4, 2015 Damian Brewer, +44 20 7653 4900; [email protected] 5
Exhibit 3: QoQ ticket rev/passenger trends, €m
Source: RBC Capital Markets estimates, Ryanair reports
Exhibit 4: Sequential unit revenues progression – bearishness needed to deliver
the FY profit forecasts, €m
Source: RBC Capital Markets estimates, Ryanair reports
Ryanair Holdings PLC
Transport
November 4, 2015 Damian Brewer, +44 20 7653 4900; [email protected] 6
Exhibit 5: myryanair.com – coming now
v
Source: Ryanair website
Ryanair Holdings PLC
Transport
November 4, 2015 Damian Brewer, +44 20 7653 4900; [email protected] 7
Exhibit 6: SoTP Base Case Valuation
€m Multiple FY 15/16E FY16/17E FY17/18E
EBITDAR - 2,041 2,233 2,296
EV/EBITDAR – 10 year median 9.4x 9.4x 9.4x 9.4x
EV - 19,090 20,890 21,476
Less: - - - -
Net Debt/(cash) - -1,304 -1,846 -2,346
Op leases, capitalised at 7.0x 839 792 792
Pensions - 2 2 2
Core equity value - 19,554 21,942 23,028
Equity holdings: - - - -
Aer Lingus 0% (assumes sold
to IAG)
0 0 0
Historical beat effect at: 9.4x
% net beat (2006-2015, agg av. vs start of year) 21.1%
EBITDAR upside potential (excl amount our base
forecast is above co. goal)
- 0 344 353
Beat upside 0 3218 3304
Total Consolidated equity value - 19,554 25,161 26,332
No of shares, m - 1409 1414 1399
Value per share, Euro - 13.87 17.79 18.82
Proportion of year ahead - 0.42 0.58
12 months forward, Euro 16.16 5.78 10.38
Source: RBC Capital Markets estimates.
Exhibit 7: Scenario-Based rounded PT
Scenario for next 12 months 2015/16E Wt'd GDP
outlook
RASM Fuel Value
12mo
Chance Wt'd val
Base case 1.7% 3.8% as forecast 16.16 65% 10.50
Bear case -6.0% -7.0% Remains high 11.56 15% 1.73
Bull case
3.0% 8.3%
Rises but yield growth offsets,
airport charges flat on 2012 17.80 20% 3.56
Potential 15.80
Rounded Price Target 16.00
Upside to Share price 12%
Source: RBC Capital Markets estimates.
Ryanair Holdings PLC
Transport
November 4, 2015 Damian Brewer, +44 20 7653 4900; [email protected] 8
Ryanair Holdings PLC
Transport
November 4, 2015 Damian Brewer, +44 20 7653 4900; [email protected] 9
Ryanair: Summary of Financials
Profit and Loss statement Cash flow statement
€ m, Year to Mar 31st FY 13/14 FY 14/15 FY 15/16E FY 16/17E FY 17/18E € m, Year to Mar 31st FY 13/14 FY 14/15 FY 15/16E FY 16/17E FY 17/18E
Revenue 5,037 5,654 6,517 6,825 7,022 Operating Profit 659 1,043 1,503 1,676 1,711
% change Y/Y 3.1% 12.3% 15.3% 4.7% 2.9% Depreciation & Amortisation 352 378 418 444 472
EBITDAR (clean) 1,112 1,530 2,041 2,233 2,296 Working Capital Chgs (30) 77 33 2 3
% change Y/Y -3.0% 37.6% 33.4% 9.4% 2.8% Other movements 0 4 5 2 3
EBITDAR Margin (%) 22.1% 27.1% 31.3% 32.7% 32.7% Cash flow from operations 981 1,501 1,958 2,124 2,188
Operating Profit (reported) 659 1,043 1,503 1,676 1,711 Net Interest (72) (72) (77) (63) (52)
% change Y/Y -8.3% 58.3% 44.1% 11.5% 2.1% Gross Capex (506) (789) (1,025) (987) (1,147)
Op. Pr. Margin (%) 13.1% 18.4% 23.1% 24.6% 24.4% Other investing cash 135 260 361 (7) (90)
Net Interest income/(expense) (67) (61) (47) (42) (33) Equity FCF (RBC defn.) 539 901 1,218 1,067 900
Profit before tax 592 982 1,774 1,634 1,677 Businesses acquired 0 0 408 0 0
% change Y/Y -9.1% 66.1% 80.6% -7.9% 2.6% Equity raised/ (repaid) (465) (98) (686) - (400)
Tax (charge) (69) (116) (172) (193) (198) Dividends paid - (520) - (525) -
as % of PBT 11.6% 11.8% 9.7% 11.8% 11.8% Other, debt raised and non-cash 416 (829) (940) (542) (500)
Net Income (Reported) 523 867 1,602 1,441 1,479 Net cash flow 489 (546) - - -
% change Y/Y -8.2% 65.7% 84.9% -10.0% 2.6%
Shares Outstanding (Av. m) 1414.6 1384.7 1409.4 1414.3 1401.8 Y/E net debt/(cash) (156) (363) (1,302) (1,844) (2,345)
EPS (reported, basic, €) 37.8 62.6 113.3 101.9 106.5 Lease adjustment 711 766 839 792 792
EPS (clean, continuing, €) 36.9 62.4 90.9 101.7 105.3 Adjusted net debt 554 403 (464) (1,053) (1,553)
% change Y/Y -6.3% 69.4% 45.6% 11.8% 3.6% DPS (€, declared, gross) 0.0 0.4 0.0 0.4 0.0
Balance sheet Ratio Analysis
€ m, Year to Mar 31st FY 13/14 FY 14/15 FY 15/16E FY 16/17E FY 17/18E year-end Dec FY 13/14 FY 14/15 FY 15/16E FY 16/17E FY 17/18E
Cash and cash equivalents 3,242 4,796 5,351 5,509 5,626
Inventory/Receivables 127 141 125 129 133 EBITDAR margin (%) 22.1% 27.1% 31.3% 32.7% 32.7%
Other current assets 76 805 496 496 496 EBIT margin (%) 13.1% 18.4% 23.1% 24.6% 24.4%
Current assets 3,444 5,742 5,972 6,133 6,255 Net profit margin (%) 10.4% 15.3% 24.6% 21.1% 21.1%
Incremental EBITDAR margin (%) -22.3% 67.7% 59.2% 62.5% 31.7%
Tangible assets 5,060 5,471 6,078 6,621 7,296 FCF margin (%) 10.7% 15.9% 18.7% 15.6% 12.8%
Intangible assets 47 47 47 47 47 Interest coverage (x) 9.8x 17.2x 32.2x 40.3x 51.6x
Financial assets 261 926 221 221 221 Effective Interest rate (IS) (%) 12.9% 17.8% -16.5% -6.0% -3.3%
Total assets 8,812 12,185 12,318 13,022 13,818 Adj. Net debt/EBITDAR (x) 0.5x 0.3x -0.2x -0.5x -0.7x
Liabilities Revenue/total assets (x) 0.57x 0.46x 0.53x 0.52x 0.51x
ST loans 409 400 400 400 400 Total assets/equity 2.7x 3.0x 2.5x 2.1x 1.9x
Payables 150 197 214 219 226 ROE (%) 15.9% 23.7% 29.7% 25.8% 21.8%
Others 1,657 2,750 3,307 3,505 3,644 RoIC (%) 15.3% 23.1% 36.4% 38.8% 36.7%
Total current liabilities 2,215 3,346 3,921 4,124 4,270 RoIC/WACC 2.12 3.54 4.90 4.69 3.99
Long term debt 2,675 4,032 3,647 3,263 2,880 Key Operating Stats
Other liabilities 636 772 (112) (668) (590) ASM Growth 7.0% 2.3% 12.2% 11.9% 3.6%
Total liabilities 5,526 8,150 7,455 6,718 6,560 RPM Growth 7.7% 9.1% 16.0% 11.9% 4.4%
Total equity 3,286 4,035 4,862 6,304 7,258 RASM YoY Chg -3.6% 9.8% 2.7% -6.4% -0.6%
CASM (ex-fuel) YoY Chg -3.1% 8.3% 2.4% -1.0% 1.1%
NAV/Sh (€) 2.3 2.9 3.5 4.5 5.2 Fuel as % Revenue 40.0% 35.2% 30.7% 26.6% 25.9%
Source: Company data, RBC Capital Markets estimates
Ryanair Holdings PLC
Transport
November 4, 2015 Damian Brewer, +44 20 7653 4900; [email protected] 10
Ryanair Holdings PLC
Transport
November 4, 2015 Damian Brewer, +44 20 7653 4900; [email protected] 11
Ryanair Holdings PLC
Transport
November 4, 2015 Damian Brewer, +44 20 7653 4900; [email protected] 12
Ryanair Holdings PLC
Transport
November 4, 2015 Damian Brewer, +44 20 7653 4900; [email protected] 13
Ryanair Holdings PLC
Transport
November 4, 2015 Damian Brewer, +44 20 7653 4900; [email protected] 14