Investor An insider's guide to the marketDCC and Ryanair, two companies with March year-ends, reported interim financial results earlier this week. Given its high profile in both the investment community and wider public, Ryanair will always grab the limelight.
Historically, DCC has adopted a low public profile, but it has found itself in the public eye this year as a result of the insider dealing court case between itself and Fyffes. For the investment community however, this set of results from DCC was particularly important in view of the recent profit warning from the company.
Poor trading in its IT and entertainment distribution business forced DCC to issue a profit warning on September 12th. The share price reacted predictably to this warning and fell sharply from €18.50 to a recent price that briefly went below €15.
Prior to the results, the shares had begun to recover, and the share price has advanced further this week.
In the half year to end of September, DCC's earnings per share (EPS) declined by 4.4 per cent, which was better than the "approximately 10 per cent" fall indicated at the time of the profit warning. Earnings before interest and tax (Ebit), which is really another name for operating profit, did fall by 37 per cent to €7.6 million in the troublesome IT division, but all of DCC's other divisions performed very well.
Healthcare profits rose 48 per cent to €10.1 million as a result of strong organic growth augmented by the acquisition of Physio-Med and Laleham Healthcare. The food and beverage division also produced strong growth with Ebit up 37 per cent to €7.4 million.
Profits from its 49 per cent interest in Manor Park Housebuilders fell in the first half, but this was a reflection of the timing of house completions.
Profits at DCC's energy division rose just 1 per cent to €10.7 million.
However, the second half is seasonally much more important and a strong performance is likely from this division over the winter months.
Brokers expect the second half of the year to be sufficiently strong to enable DCC to post full-year growth of approximately 5 per cent in its EPS. This puts DCC on a price earnings ratio (Per) of about 11, which is attractive in the context of DCC's strong balance sheet and its proven long-term track record of growth in earnings and dividends.
Uncertainty regarding the IT division and the Fyffes judgment may hold the shares back somewhat in the short term. Over the long term, Investor believes that DCC will continue to reward its shareholders with above average returns.
Over the past 12 months, Ryanair's share price has risen by 50 per cent, as it became apparent that the company could continue to grow its sales and profits in the face of rising oil prices.
Ryanair reports quarterly and its Q2 results were stronger than the market anticipated. Trading profits for the quarter rose by 18.5 per cent to €202.2 million. In the six months to the end of September, passenger numbers rose to 18.03 million and average fares were €45.30.
Ancillary revenues are now an important source of revenue and such spending per passenger rose to €7.18 in the second quarter. A tight rein was kept on costs per passenger, which declined by 7 per cent (excluding fuel) during the fist half of the year.
Ryanair's share price had a strong run prior to the results hitting a high of €7.25. The price has come back somewhat post the results.
This seems to be due to the mildly cautious tone of the group's statement concerning the outlook for the third and fourth quarters. The company is guiding full-year net income of €295 million. This puts the shares on a PER of approximately 18, which is significantly higher than the market average. In Investor's view, such a premium rating is fully justified in the light of Ryanair's rapid historical growth.
Although it is now a large airline, there is ample potential for the company to grow further over the next three to five years. Air travel is growing throughout Europe. The results from these two companies continue this year's pattern of solid corporate performance.
In Investor's view, both shares offer upside - some recovery potential for DCC after its recent profit warning, and the medium-term growth story continues in Ryanair's case.
