Ryanair is making headlines to start the week, as the company reported record earnings results that jarred markets. The improved numbers came after higher revenues (from add-on charges for pre-assigned seating and extra luggage) contributed positively to the company's profit performance. Net profits on a yearly basis rose by 13%, to $735 million (a new record for the company). Analyst estimates were calling for these results to come in at $718 million.
Sales figures increased by 13% (to $6.3 billion), which is reflective of a 6% percent rise in the company's average ticket price and the introduction of 217 new airline routes. Ryanair's network now includes more than 1,600 routes, with the company opening up new bases in the Netherlands, Morocco, Croatia, Poland and Greece.
In response to these latest headlines, markets have pushed the company's stock to new record highs. But this complicates things for investors looking to buy into Ryanair's rally at these elevated levels, and alternative instruments should be considered when playing these moves.
Closed-End Fund Options
The broader story at Ryanair is based on an innovative business model, where low prices for tickets are offered in addition to supplemental services (such as carrying extra luggage or sending printed boarding passes), which incur extra fees. Flight numbers show that Ryanair carried 5% more passengers (totaling nearly 80 million) in 2012. But with the 20% increase in sales for added services, the company was able to generate an upside surprise in its yearly performance.
Looking at the chart below, we can see that Ryanair has surpassed its previous all-time highs from 2006, as the latest earnings results have clearly caught sections of the market off-guard. This equates to a yearly rally of nearly 45% in the stock.
Buy IRL as a New Play on Ryanair
For investors looking to gain exposure to Ryanair, the best way to buy-in at these elevated levels is to consider closed-end funds which include the stock and are trading at a discount to Net Asset Values (NAV). With net assets valued at nearly $60 million, the New Ireland Fund (IRL) meets this criteria and is trading at a 12.1% discount to NAV.
IRL offers investors an opportunity to make a play on the wider recovery story in the eurozone, and the fund managers have been long-time proponents of Ryanair and its business model. But its wider portfolio presents some other opportunities as well. Focusing primarily on Irish securities, the New Ireland Fund is well-positioned to benefit from the fact that Ireland is the only English-speaking member of the euro-area that is still viewed as an attraction for foreign direct investment.
Stocks in the fund are characterized by low valuations, strong cash flows and stable balance sheets. In addition to this, further progress in the eurozone suggests a reduced likelihood that we will see any country exits from any nation in the 17-member union - a positive because this reduces the potential for added turmoil in regional stock markets. These latest figures from Ryanair will contribute to additional upside in IRL, enabling investors to play off of the latest earnings surprise while still buying in at the discounts offered by the closed-end fund.