Ryanair faces drop in earnings as 2013 fuel left unhedged
CREDIT Suisse has slashed its target price for Ryanair shares by 18pc and predicted a "significant risk" to the airline's earnings in 2013 due to an unhedged fuel position for the period.
Analysts led by Neil Glynn at the investment bank said in a research note released yesterday that investors are likely to increasingly focus on Ryanair's 2013 financial year in coming months, zeroing in on the fact that the airline hasn't any forward contracts to cover its fuel requirements for the period.
Credit Suisse pointed out that while Ryanair has 90pc of its fuel requirements hedged for the period to the end of December this year, it only has 50pc in place for its 2012 financial year and none hedged for the subsequent period.
"In our view, this hedging position has limited share-price declines in the year to date, but we expect the market to increasingly look forwards to full-year 2013 in coming months and to recognise a subdued earnings growth outlook," noted the Credit Suisse report.
The institution cut its forecast earnings for the current financial year by just €2m to €408m, but has pencilled in a 4pc fall in the following year to €507m.
However, for the 2013 financial year, Credit Suisse has cut its predicted earnings at Ryanair by 17pc to €489m from €588m.
Credit Suisse said that consensus earnings forecasts for Ryanair's 2013 financial year has only slipped 2pc so far despite a 28pc rise in jet fuel pricing.
It reckons Ryanair's fuel costs in its 2013 financial year will jump to just over €1.99bn, up 15pc from the institution's previous estimate of €1.73bn.
It also envisages that Ryanair will probably pressurise "substantially weaker" players in Ireland, the UK, Spain and Italy in 2012 and 2013 due to its lower planned-growth rates.
Credit Suisse said the airline would likely exert its "industry-low unit costs and strong balance sheet to gain market share".
"This strategy is attractive for the long-term investor but may prove unattractive in the short term, particularly as the carrier most exposed to discretionary travel spend in the sector," added the investment bank.
Shares in Ryanair closed up 5 cent at €3.27, a gain of 1.4pc