Industrials

Mr Market changes his mind by 90% in twelve months - the FY23 net profit figure that RYA earlier this week guided to be €1.85-€2bn was expected to be almost half that level this time last year! The un-forecasted driver of the difference was something Andrew Hollingworth has been writing about at length for some time now. i.e., the firmer pricing that comes from a consolidated market and RYA’s ever-growing unit-cost gap with its peers. This company is on its way to making ROE’s of c.30% for many years to come. Doing so in a business model that arguably has a huge low-unit cost moat around it. If it were to again distribute 70% of its profits annually and keep growing, what PE do you think it deserves? It’s not 10x.

Industrials

Surprised? You shouldn’t be - following RYA's strong than expected third quarter, analysts are now running around tweaking sector spreadsheets, updating forecasts and their recommendations in a frenzy. But as Andrew Hollingworth observed last year, less discounting but still super low unit costs = much higher profits. He believes market leadership in scale and unit cost has been secured. Now demand resurgence will play out towards the endgame Andrew has previously outlined. What gives in all this is pricing. Some investors will catch on quickly to this change, many will assume short-term pricing gains will be given back. They will be wrong. Stay long and enjoy the ride!

Industrials

Thriving in the chaos - many analysts appear anchored to a profit recovery potential of c.€10 net profit per passenger. However, Andrew Hollingworth thinks €15 NPPP is a very achievable target. He also expects c.25% EBIT margins. At 225m passengers (RYA’s 2026 target), €15 NPPP gives net income of €3.4bn. For a little perspective RYA’s almost debt free M/Cap is only €13bn. Some will argue that c.20% ROE’s is impossible - it is. The magic comes from negative working op that is c.30% of sales. Customers and suppliers fund much of RYA’s growth so shareholders don’t have to!

Industrials

Imagine RYA with pricing power! Andrew Hollingworth updates his bullish thesis focusing on the airliner’s end game - market dominance and higher yields (seat prices). While many analysts will be busy modelling near-term volume recoveries/units costs/carbon taxes etc. Andrew is looking further out. He was modelling RYA’s operating leverage for such an end game long before Covid struck and with the pandemic now easing (and c.20% of short haul capacity leaving the EU market) he thinks it right to start doing so again.