Ryanair's star shines less brightly

For a firm that has been a star of the Irish stock market since it floated three years ago, this year has been poor for Ryanair shareholders. The shares are down almost 19 per cent on January's opening level, so what has gone wrong with one of the market's go-go stocks?

And Ryanair shares have not just fallen in value, they have also fallen relative to its peer group in the low-cost airline sector, have fallen sharply relative to the major European airlines and also against the FTSE-300 transport sector. This weak performance is despite introducing new routes ex-Stansted, third quarter results that beat expectations. strong monthly traffic statistics and a massive airline order with Boeing.

But analysts say shares have suffered from some specific factors. Company broker Davy cites: the residual effects of the €195 million share placing in February; a belief that the airline sector has become more competitive; a general move in favour of cyclical stocks and some technical factors relating to the FTSE and MSCI indices which has reduced Ryanair's weighting in the indices.

Recently, there has also been some forced selling of shares as a result of measures the airline put in place in February to ensure that it complied with EU regulations req uiring majority European ownership of European airlines.

When Ryanair introduced the measures, the shareholding split was about 51-49 between European and American shareholders. To ensure that European remained in a majority, Ryanair required share buyers to certify they were EU nationals or else the shares they bought would be redesignated as restricted shares. Holders of these restricted shares would then be required to sell them to an EU national or else Ryanair would be entitled to sell them on their behalf. But market sources think this reallocation is largely complete and will diminish as a factor weighting on Ryanair shares.

The value of Ryanair shares has also to be viewed against the current restructuring in the low-cost airline sector which has seen EasyJet agree to buy Deutsche BA and linked with a likely £500 million sterling for Go, the BA low-cost spin-off that briefly competed with Ryanair on routes from Dublin to Scotland before being forced to withdraw.

According to Davy estimates, a merged EasyJet/Deutsche BA/Go would be larger than Ryanair in terms of routes and passenger numbers, although Ryanair would still be substantially larger in terms of stock market capitalisation - despite the recent slump in the share price. Ryanair has 76 routes and just over 11 million passenger, while the combined Easyjet/Deutsche BA/Go has 89 routes with 16 million passengers.

Both Davy and Goodbody believe the enlarged EasyJet has few implications for Ryanair as both operate different business models although operate within the broad low-cost sector.

They believe that the Ryanair share price will recover, with Davy pencilling in a 12-month target of €7.50 while Goodbody goes further with a 12-month target of €8.00.