Imperial Capital: We're Downgrading Ryanair Holdings On FX Concerns

In a report published Wednesday, Imperial Capital analysts downgraded the rating on Ryanair Holdings plc RYAAY from Outperform to In-Line. The price target was lowered from $85 to $70. The analysts expect the company's performance to be impacted by Fx headwinds. Operating results for FY2015 as well as the management's guidance for FY2016 indicate that the "structural shift to less seasonally sensitive primary airports is generating new business and leisure traffic for Ryanair." The analysts expect the company to continue adding more services to its existing primary bases, while also adding more primary airports to its network, as conditions permit, which would drive improvements in its operating margins and euro-based EPS for the year ending March 2016. The company has reported its first positive operating income for the seasonally slow March quarter for the first time in six years. The analysts believe that this was because "new primary airports offer a larger pool of both leisure and business travelers and markets with year-round daily demand allowing Ryanair to add routes that are profitable year-round rather than only in summer." Ryanair expects more than half the increase in its passenger traffic to be driven by its new primary airport service during 2016. The analysts have lowered their EPS estimate for 2016, however, to reflect the weaker euro exchange rate as well as the revised guidance. The revised guidance suggests that the company is likely to continue to witness periods of weaker yield due to competition. At the same time, unit costs are likely to decline due to marginally lower fuel costs in FY2016. The company reported its 4Q15 results, largely in-line with the expectations.