Ryan Air — The times they are a changin’

Preclude

Investing, at its finest, has never been about the past, because a company’s intrinsic value is essentially the aggregate discounted future cashflow that the company can generate. 2020 has been a bad year for the airline industry, to say the least. All are loss-making. Airlines either have gone bankrupt are on a brink of one. Those that have managed to survive until now are burning through billions of dollars a month. However, despite bleeding cash, some stocks in the industry have climbed back up to their pre-pandemic levels , one of which is Ryan Air. Once a humble player whose strategy is to use aggressive cost-control to keep tickets price low, Ryan Air is vying to increase its market share by taking advantage of the paradigm shift in the post-Covid era of airlines. The two most significant shifts, in my opinions, are (1) business travel segments will significantly contract as we are given time to get used to teleconference tools and (2) leisure-travel will become the driver of growth for the industry in the coming years, for WFH could also mean working at a beach somewhere in Bali.

Financial Analysis

A closer look at its performance, Ryan Air stands out against its European and American peers (already excluded those with not meaningful ROIC and Net Leverage figures):

Peer analysis — Airlines

Valuation Model and Results

For the DCF model, here are my main assumptions:

Cost of Capital — Summary
Valuation Summary — Ryan Air
Sensitivity analysis — value per share

Verdict

As a contrarian investing apprentice, I am tempted to rummage through financials to search for value and invest in an industry that is on life support such as the airline industry. With a strong balance sheet and a nimble cost structure that will serve as its main competitive edge against other competitors, Ryan Air earns a “buy” recommendation from me, even its stock has climbed back up to its pre-pandemic level. I do believe that the airline will claim its place as one of the biggest players in the field if it can ruthlessly exploit opportunities presented to them.

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