Barry Norris, manager of the IM Argonaut European Alpha Fund (GB00B4ZRCD05), believes that budget airline Ryanair is one of the best investment opportunities around. In its recent annual results, the airline reported a 13 per cent rise in both profits and revenues, while earnings per share increased 16 per cent to €0.39.
"People have a jaundiced view of investing in airlines," said Mr Norris. "Yet Ryanair has again shown the strength of its operating model and that accelerated growth prospects need not necessarily come at the expense of future dividends. The shares offer sustainable earnings growth and attractive dividend income in an environment of low economic growth and scarcity of investment yield. Ryanair's combination of growth and yield is the new holy grail in stock market investment, and shares like Ryanair are uncommonly attractive. Low-cost airlines currently represent one of the best investment opportunities around.
"It is often assumed that companies face a two-way choice between investing in their business for growth by increasing capital expenditure, or paying out profits to shareholders in the form of dividends. But this is not the case for companies with a high return on equity, or is more specifically a false choice for companies that have a return on equity in excess of their growth rate.
"Ryanair is a great example of the way in which a company with a superior business model can generate consistent compound earnings growth for investors in a difficult industry environment, with its superior unleveraged return on equity of 17 per cent being crucial to the success of its model."
Mr Norris has held Ryanair since 2010 and it accounts for around 5.5 per cent of IM Argonaut European Alpha Fund's assets. Ryanair is listed on the Irish Stock Exchange and currently trades at around €6.75 a share.
The Investors Chronicle rates Ryanair as a hold. Read our report on Ryanair's results.
