Berenberg ups rating on Ryanair to 'buy'

Berenberg has upgraded Ryanair and reiterated its ratings on Wizz Air and easyJet on expectations of an uptick in short-haul capacity over the medium-term.

The Irish low cost carrier has been upgraded to ‘buy’ from ‘hold’, with rivals Wizz Air and easyJet left as a ‘buy’ and a ‘hold’, respectively.

Berenberg said: “Whipped around by changing summer travel restrictions, we shift our focus to 2022. We turn more positive about medium-term airline industry price after refreshing our bottom-up industry capacity outlook.

“Our outlook suggests that 2022 short-haul capacity will be at 85% of 2019 levels, with a full recovery by 2023. This broadly mirrors our demand recovery expectation, so leaves our pricing outlook slightly more positive than we were previously.”

The broker added that Ryanair was set to benefit the most from any of the low cost carriers from the downsizing of Alitalia and Norwegian, “which together represented over 15% of seats on Ryanair’s network in 2019”.

It added: “Ryanair’s margin and return on invested capital potential appear underappreciated based on our analysis of the unit economics of its 210 incoming 737 Max aircraft, set to be delivered from April.

“We expect Ryanair’s cost leadership to rise, helping it break even quickest among the low cost carriers, and for margins to exceed pre-Covid-19 pandemic levels by the 2024 full year.”

Berenberg said Wizz Air was likely to continue to benefit from its shift to larger-gauge A321neo and A32oneo aircraft, along with its isolated network.

EasyJet offered more balanced risk and reward, it added, "even with high gearing to industry pricing. However, we expect it to show less cost progress, facing a drag from non-operating costs. Further, we consider upside possibly capped, as share price gains could be undercut by pressure to shore up its balance sheet with more equity.”

As at 1200 BST, shares in Ryanair were ahead nearly 4%, while Wizz Air and easyJet were both up 3%.