Stock pick of the week: Aer Lingus
Published 09/08/2011 | 10:23
We recommend Aer Lingus as a deep value stock. At 55c the stock is trading at just 0.4x its book value.
More than 90pc of the book value is made up of aircraft, which in a worst case scenario, could easily be sold on the open market.
Moreover, the company has a healthy cash position, worth 66c per share. We therefore see the downside as limited.
Aer Lingus reported a 0.7pc rise in passenger numbers for July 2011 for its core business and should be able to achieve low growth from here onwards.
More importantly, the focus for Aer Lingus is on higher average fares. This effort should be supported by a similar effort from Ryanair and from the lower travel tax in Ireland. Aer Lingus is also a clear beneficiary of falling oil prices.
Consolidation in the European airline continues and Aer Lingus stands out as an attractive asset, especially given its 23 landing slots at capacity strained Heathrow airport.
If Ryanair was convinced to sell its 29pc holding by an attractive price or compelled-to-sell by the Office of Fair Trade in the UK, we suspect most of the European majors would be interested to take full control.
Independent.ie stock picks are not explicit or implicit recommendations to buy or sell the shares mentioned, under the Market Abuse Regulations 2005. Merrion Stockbrokers may be corporate adviser to some of the shares chosen.