Should you buy risky Ryanair Holdings or even riskier UK Oil & Gas Investments?
Budget airline Ryanair Holdings(LSE: RYA), which has suffered a series of bumpy landings over the last year, banged into the tarmac again this morning. Its stock was down 4.1% as Q1 results show a 20% fall in profits to EUR319m.
Life of Ryan
At least the straight-talking airline has not buried the bad news. It's right up there in the introductory paragraph, alongside its explanation: "Strong traffic growth (up 7%), overcapacity in Europe, and the earlier timing of Easter led to a 4% decline in ave. fares. Higher fuel and staff costs offset strong ancillary revenue growth in the quarter."
Traffic grew to 37.6m, despite over 2,500 flight cancellations caused by staff shortages and strikes. "Ryanair's lower fares delivered an industry leading 96% load factor," it added. Fuel prices have risen to $80 a barrel, up from just $50 this time last year. And despite 90% hedging at $58 a barrel, its full-year bill will increase by at least EUR430m, including additional volumes.
Turbulence ahead
Ryanair still rakes in plenty of cash, allowing it to fund EUR460m of capex and make EUR265m of shareholder distributions in the quarter, while paying down EUR24m of net debt, cutting it to EUR259m on 30 June. Its EUR750m share buyback programme is now 70% complete.
Ryanair has returned over EUR6bn to shareholders since 2008. But the future may not be as rewarding as it faces a series of headwinds including climbing oil prices, European air traffic control strikes, rising wages and competition, not least from IAG. City analysts reckon earnings may drop 6% in the year to 30 April 2019. Ryanair will doubtless take off again, so look out for a good time to hop on board.
Domestic shale play
The budget carrier looks positively low-risk compared to UK Oil & Gas Investments(LSE: UKOG). The domestic shale explorer continues to exert a hold over private investors, even though its share price has plummeted from a peak of around 11p to today's price of 2.3p. This was largely due to disappointing test results and costly write-downs, which saw pre-tax losses for the six months to 31 March hit £4.4m, up from £1.1m a year earlier. I hope you didn't get sucked in by the clamour.
However, my Foolish colleague Roland Head reckons this AIM-listed company could be heading for 7p again. He notes that it has sorted out its debt concerns, with its lowly net cash balance of £700,000 now revived by a successful £10.5m share placing -- which should keep it busy for another 18 months -- plus another £2m earlier this month.
Blind love
UK Oil & Gas has also changed its trading status from an investing company to an operating company, in order to take direct control of operating interests in its oil and gas sites.
Anybody who buys the stock now is in for a testing time, literally, as we await further results from its Horse Hill-1 well in the south of England. My worry is that it has risen to prominence due to its novelty of a shale explorer in the Home Counties. I cannot deny it's an exciting prospect but you have to invest blind, test results unknown, to really make money. Too risky for me.
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harveyj has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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