Ryanair shares downgraded as they ‘pause for breath’

Ryanair shares will "pause for breath" according to investment bank UBS, which downgraded the airline from a 'buy' rating to 'neutral'.

The bank said it continued to view Ryanair as the “best-of-breed short-haul operator in Europe” but that it now sees a balanced risk and reward, thus causing it to downgrade the stock.

Commenting on Ryanair’s €600 million share buy-back programme, which it announced on Tuesday, UBS said: “We think the buy-back will be supportive for the shares and there is the potential for further buy-backs/special dividends to follow.”

In its client note, UBS said it forecasts unit costs excluding fuel falling roughly 2 per cent because of strong traffic growth and a management focus on cost control.

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Excess cash

The investment bank also said it expects Ryanair to continue to return excess cash to investors, having returned €4.8 billion in the form of share buy-backs and special dividends since 2008.

UBS said that the market has priced in implied growth of roughly 3 per cent, but that it thinks that final growth rate is “too conservative given the history of growth as well as forecast future growth”.

On Wednesday, Citigroup downgraded Ryanair to 'neutral' from 'buy' saying that the upside, or forecasted increase in the price of an investment, is getting more limited.

Despite that, Citigroup said it expects Ryanair to raise its passenger volume targets from 2019 onwards and that the airline could capture market share from downsizing legacy airlines in Germany, Italy and Poland.

In its full-year results announced on Tuesday, Ryanair said it grew profits after tax by 6 per cent to €1.316 billion in the 12 months to March 31st.