Are Lloyds Banking Group plc and Ryanair Holdings plc ready to take off?
Today I'll be taking a closer look at low-cost airline Ryanair, and 'big four' banking group Lloyds. Are shares in these companies set to soar?
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Flying high
Low-cost airline Ryanair(LSE: RYA) had plenty to cheer about last week when the latest set of passenger statistics was announced for May. The Dublin-based airline saw its passenger numbers rise to 10.6m, 12% higher than May 2015, with the passenger load factor two percentage points higher at 94%. Rolling annual traffic to May also grew 16% to 108.5m customers. The company pointed out that these improved figures were achieved at lower fares, which might be expected to increase passenger numbers, but also despite the on-going disruptions caused by air traffic control strikes in France.
The encouraging figures come on the back of the company's recent annual results that revealed improvements in revenues and profits for the financial year ended in March. The low-cost carrier reported a massive rise in pre-tax profits to EUR1.72bn, compared to EUR982m reported in 2015, on higher revenues of EUR6.5bn. Underlying earnings per share jumped 81% to 116.26¢, compared to 64.19¢ for the same period a year earlier.
Despite the strong results, the company remained cautious about its outlook, and brokers seem to agree, with analysts expecting earnings to remain broadly flat in this financial year, before posting a 15% rise for FY2018. This would leave Ryanair trading on 12 times forecast earnings for the current year, falling to just 11 for the year ending March 2018. I think the shares offer outstanding value for investors looking for capital growth in the medium term.
Fat-cat dividends
According to recent media reports, Lloyds Banking Group(LSE: LLOY) could be preparing to bid for Bank of America's credit-card business, MBNA. If the deal goes ahead, Chester-based MBNA would fit nicely with Lloyd's search for acquisitions to speed up its planned expansion in niche areas such as unsecured consumer loans, car finance, leasing and fleet management.
Market consensus expects earnings to fall 11% to £5.42bn this year, before recovering to £5.52bn in 2017. But with the shares falling 21% during the last 12 months, I think the bad news is already in the price, and the bank looks oversold. Lloyds' shares are trading on just 9 times forecast earnings for FY2016 and FY2017. What's more, dividend payouts are expected to rise to 4.38p per share for this year, and again to 5.08p next year, offering impressive yields of 6% and 7% until 2018.
I believe Lloyds offers a fantastic opportunity for brave contrarians to go against the herd and buy the shares at a heavily discounted price while sentiment is low. Furthermore, the chunky dividends should begin to attract investors back to the bank, and help support the share price over the medium term.
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Bilaal Mohamed 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.
