Davy tips Ryanair's shares to hit €7.50 as it expands
Ryanair's shares are set to hit €7.50 as its new aircraft order enables it to embark on a period of controlled growth, according to a new report from Davy stockbrokers.
The stockbroker made the fresh assessment after Ryanair confirmed an order with Boeing last month to buy 175 aircraft. Davy previously had a €7 price target on the airline's shares.
Davy stockbrokers says that Ryanair could finance the multi-billion euro order from free cash flow and manage to engage in further share buybacks and pay special dividends in a few years. About 20pc of the aircraft purchase will be financed through sale and leaseback arrangements.
Ryanair has plans to boost its annual passenger traffic to 120 million from its 80 million level. Davy reckons the carrier would be able to achieve the 120 million number by 2024.
The airline currently has a 12pc share of the intra-European market as measured by seats. In the United States, peer Southwest has a 21pc share of the domestic market, where four carriers control about 90pc of the market.
"Within Europe, five carriers control circa 50pc of the seats, implying scope for further consolidation," added Davy. "We believe that Ryanair will continue to take market share in the European (and potentially neighbouring regions) point-to-point market."
The broker added that Ryanair's substantially lower cost base offers a competitive advantage that should allow for continued growth. Ryanair's cost base, excluding fuel, is about 50pc lower than its European competitors.
"This not only provides an advantage on routes that face competition but also allows Ryanair to operate routes that would be unprofitable for other airlines due to their higher cost base," notes Davy.
"These two factors help to explain why over two-thirds of Ryanair airport-to-airport pairs face no competition."