market folly

We're posting notes from the London Value Investor Conference 2016.  Next up is Jonathan Mills of Metropolis Capital who pitched long Ryanair.


Jonathan Mills' London Value Investor Conference Presentation

Investment idea: Ryanair 

Ryanair is the fourth largest airline by market cap and the largest in Europe.  It has greater coverage than any other airline in Europe. The CEO, Michael O’Leary, is an ‘owner occupier’ with a stake in the company worth over Euro 600m.

Ryanair has the lowest short haul fares in the industry by a significant amount yet surprisingly has the highest margins. It has done this by having the lowest costs and by being very efficient.  It has the lowest route charges, it does not spend as much on sales and marketing as its competitors and it pays less for its planes.  Ryanair work their people harder and there are no unions. Ryanair employees work longer hours and receive incentive based pay.

Customer behaviour has been changed to reduce costs further. Being the first to introduce charging for check-in bags resulted in faster check-ins, fewer desks and less fuel. Ten year CAGR +15%. They are planning to double passenger numbers by 2024. There is plenty of room to gain market share in Europe with current share at 13%. Ryanair is generating more cash than it needs to fund its growth.

What are the dangers to the business? Load factors could decline. Oil prices are rebounding. Labour law changes could increase costs. Terrorism or a plane crash could reduce demand. Mills thinks the biggest risk is that O’Leary exits the business.

Ryanair is the Amazon of the airline industry. It is the largest and lowest cost producer - but with the highest margins. It has excellent capital allocation with large share buybacks and dividends and a balance sheet with net cash. It trades on a forward multiple of 11x.


Be sure to check out the rest of the presentations from the London Value Investor Conference.