Investment bank Morgan Stanley Dean Witter is forecasting strong growth for no-frills airline Ryanair and expects the shares to rise from the current 420p to 520p over the next 12 months.
"In our view, Ryanair's medium-term earnings growth potential should remain high and we believe that the company is in a strong position to succeed in a broadly unexploited European low-cost aviation market," says MSDW analyst Martin Borghetto, who adds that Ryanair deserves to be valued at a premium to the Irish market.
Mr Borghetto suggests that, on the basis of superior earnings growth forecasts and its high returns on equity, Ryanair deserves to trade at a 63 per cent premium to the Irish market. This suggests a target price/earnings ratio of 25 and a valuation target of 520p per share or $39.50 per ADR.
The MSDW analyst says that the target price is supported by a comparison with Ryanair's US peer group. Southwest Airlines is the closest in business concept to Ryanair, and MSDW's 12-month price target of $30 represents 23 times the 1999 earnings forecast of $1.30 per share.
"Ryanair's estimated earnings growth and return on capital are higher than Southwest's, but the US carrier is considerably larger, with an excellent track record and consistent long-term growth," says the MSDW analyst.
