The airline that everyone loves to hate has been big in the headlines this week. Ryanair Holdings (LSE: RYA) has admitted it has right royally screwed up its staff holidays and is having to cancel around 2,000 flights over the next six weeks. One might have thought that changing the firm’s holiday year-end and matching it up with maximum allowed flying hours for pilots was a problem not beyond the wit of a human equipped with a computer, but it proved too much of a task.
Anne Perkins of the Guardian went as far as to describe Ryanair as “much more than an airline – it’s a parable for our greedy times“, and I’m not without sympathy for her view.
So should we be dumping Ryanair shares now? Not a bit of it. In fact, I reckon we’re looking at a good time to buy. Cancellations have cost the company around £20m so far, and the total cost of the farce is still to be worked out.
But Ryanair air seems to thrive on bad publicity, and such a sum is small change for a company that is so strongly cash-generative — the year to March 2017 brought in approximately £1.15bn in pre-tax profits and left it with more than £1bn in cash on the books.
No Gerald Ratner
Despite the number of times negative press has resulted in opprobrium being heaped upon chief executive Michael O’Leary’s head, shareholders should love him. Here are a few more numbers that show why…
Ryanair shares have multiplied 3.6-fold over the past five years, to €16.80, driven by a trebling in earnings per share. Analysts expect that to continue, with EPS growth of 20% and 13% on the cards for this year and next putting Ryanair shares on a PEG of just 0.7 and a forward 2019 P/E of only 12 — both suggest a bargain valuation to me.
Mr O’Leary might not be someone you’d invite round for tea with the vicar, but he’s not doing a bad job of enriching his shareholders.
A better bargain?
Speaking of bargain airlines, I’ve been revisiting International Consolidated Airways Group (LSE: IAG) for the first time in a while, and I’m pleasantly surprised by what I see as an attractively low valuation.Â
I’ve never been a great fan of the world’s major airlines, as I see them as being pretty much all the same and competing only on price. They’re hostages to fuel prices too — though right now, the oil market is being very kind to them.Â
But in its past few years of recovery following its bad patch, International has been growing its earning nicely — EPS more than quadrupled between 2013 and 2016, and further growth is expected to add another 11% to that by December 2018.
Super cheap
While that’s been happening, the share price has been standing still. If you buy the 590p shares today, you’ll be locking in a forward P/E of only seven based on this year’s forecasts — and to put that into perspective, it’s only about half the FTSE 100‘s long-term average. Oh, and it drops to just 6.4 based on 2018 forecasts.
On top of that, there are dividend yields on the cards of 4% and better.Â
The market may well be factoring-in fears of rising oil prices, but I think it’s overdone — and I really do see the shares as undervalued right now.