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Ryanair’s wings clipped by Berenberg downgrade to ‘sell’, sees ‘value trap’ for low-cost airlines

Published: 06:15 08 Jan 2019 EST

Ryanair plane
Berenberg’s analysts said they believe short-haul air fares are likely to stay lower for longer, which indicates a potential value trap for low-cost carriers

Berenberg clipped Ryanair PLC’s (LON:RYA) wings on Tuesday, downgrading its rating for the Ireland-based budget airline to ‘sell’ from ‘hold’ in a sector review.

The German broker also reduced its target price for the dual Dublin and London-listed group to €9.75, down from €12.60 previously, with the stock trading at €10.57, down 0.9% on Monday’s close.

READ: Ryanair and Wizz Air report double-digit passenger growth in December

In the note to client, Berenberg’s analysts said it believes short-haul air fares are likely to stay lower for longer, which indicates a potential value trap for low-cost carriers such as Ryanair.

They pointed out that Ryanair – recently ranked the worst airline for the sixth year in a row by consumer group Which? – is seeing sustained competitive pressure to pricing, while its cost progress remains highly uncertain.

The analysts said they have cut their full-year 2019 net income forecast for Ryanair to below the company's guidance range as they see fewer growth opportunities and limited ability to offset cost inflation

Elsewhere in the discount sector, the Berenberg analysts also cut their target prices for blue-chip easyJet PLC (LON:EZJ), down to 1,010p from 1.160p, and for mid-cap Wizz Air PLC (LON:WIZZ) to 3,600p from 3,800p.

They maintained a ‘sell’ rating on easyJet and a ‘buy’ stance on Wizz Air.

Berenberg said it sees opportunity in flag carriers, such as FTSE 100-listed International Consolidated Airlines Group PLC (LON:IAG), citing the positive supply/demand setup helping them to hold onto pricing into 2019.

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