Compared to those two, the struggling Flybe (LSE: FLYB) has been a flop, with years of losses leading to an 80% share price fall over the same period. But with 10 June having brought us results for the first full financial year of Flybes three year transformation plan, could we be looking at a recovery bargain?
Forecasts suggest Flybe will be back in profit this year, with a trebling in EPS penciled in for the year to March 2017 putting the shares on a potential P/E of under 4! Thats still two years away, and a small airline recovery is a risky thing to invest in, but will it come good?
Flybe reported a pre-tax loss of 35.6m for the year, although 12m of that was from Flybes now discontinued joint venture with Finnair, after a reduction in charter business and a planned drop in overall capacity helped knock revenue down by 7.5% to 574m.
More bums on seats
But after a number of adjustments, the company claimed an illustrative profit of 16.6m, and it recorded improved passenger statistics with a 3.3% rise in revenue per seat to 51.35 and a 5.7 percentage point rise in load factor to 75.2%. The airlines cash position is also healthy enough, with total cash of 195.9m as of 31 March. That equates to 90.4p, which seems attractive compared to todays 58p share price.
We cant ignore the competition though, so how are the two low-cost rivals faring? Well, easyJet shares have actually been flat since the start of 2014, but even after their terrific rise theyre still trading on a forward P/E of a fairly modest 12 on todays 1,587p share price, dropping to 11 on 2016 forecasts and thats with well-covered dividends of better than 3%.
Ryanair, which has actually gained 62% over the past 12 months, is on a loftier valuation with mooted P/E multiples of 16.5 and 13.5 this year and next on a price of 11.9p, with only a 1.5% dividend indicated for 2017.
I dont like airlines as an investment generally and Id really want to see a low-enough valuation to give me a safety margin. On that score, easyJet comes close, and I think it could actually be a decent investment over the next few years. But Id be steering clear of Ryanair on todays valuations.
Flybe looks cheap
Putting those two aside, it looks to me like theres a lot of upside potential for Flybe thats just not accounted for in the current share price. I can understand why investors are cautious, but chief executive Saad Hammad opined that Flybe is back on track to recovery and profitable growth and he could well be right.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.