Always Getting Better has been the rather tedious corporate mantra of Ryanair for the past four years. In Michael O’Leary’s Dublin Irish this translates as “stop pissing people off”. There was always a sense the chief executive never really bought into it, that it was the construct of youngsters in the marketing department. Every time he had to utter the words there was an unseen rolling of the eyes.
But now Mr O’Leary is free. Given his airline is doing the opposite of always getting better, he is no longer being forced to mention it. Instead, at yesterday’s half-yearlies we heard a catalogue of things that were getting worse: air fares are going down (because people haven’t got the money to fly); his own people have been going on strike regularly for the first time in the airline’s three-decade history; Mr O’Leary has had to roll over on union recognition and pay demands and his labour costs are soaring; fuel costs are rising fast (pegged to the price of crude oil); maintenance costs for the ageing fleet have taken off.
On top of that list of things getting worse, Mr O’Leary’s punt on buying an Austrian airline owned by Niki Lauda, the former racing driver, is looking like a disaster: €150 million of losses in the first year and unlikely to break even next year.
All that takes us back to 2015, the financial year in which Always Getting Better was launched and the last time Ryanair’s after-tax profits came in below €1 billion.
Back in the days when many believed Ryanair’s unchecked success was too good to be true, Mr O’Leary would quip that the only things that could bring his airline down would be an aircraft crash or if he started “believing my own bullshit”. He is guilty on the latter with his treatment of his employees, and that has come back to bite him in terms of cost and added complexity. The question is not so much should “we buy Ryanair shares?” as “should we invest in the airline industry?” during this latest bloody turn of rising costs in the aviation cycle.
The fact is Ryanair’s market strength means that it will outmanoeuvre the opposition in the long term. The shares trading at 13.5 times this year’s earnings make it a buying opportunity.
ADVICE Buy on weakness
WHY Many loathe Ryanair for the reasons it is successful
Alliance Trust
Alliance Trust has agreed to sell Alliance Trust Savings (ATS), its investment platform subsidiary, to Interactive Investor for £40 million. The business allows advisers and individuals to manage their portfolio of savings and investments for a fixed fee, as does Interactive Investor (Amy Wilson writes).
The combined business will have £35 billion of assets under administration and 400,000 customers. The sale also includes Alliance Trust’s office building in Dundee, where it was founded in 1888.
However, ATS accounted for just 1.3 per cent of Alliance Trust’s portfolio and made a loss in 2017, so the direct impact on the trust’s future investment performance will not be huge. Instead, the significance of the sale is that it marks another milestone in the work the trust is doing to streamline its business and focus on generating returns for shareholders from its global equity portfolio.
This month Alliance announced the sale of private equity assets to PineBridge Investments and it is still considering the sale of mineral rights it holds in the United States. Most significantly, last year it sold its in-house investment management business to Liongate and outsourced stock-picking to a group of eight fund managers overseen by Willis Towers Watson. So far, the strategy is paying off: between April 1, 2017, when Willis Towers Watson took over, and September 30 this year, the return on the equity portfolio has been 18.1 per cent, compared with a 16.4 per cent return by the MSCI All Country World Index, the benchmark Alliance measures itself against.
In its most recent update to shareholders, Alliance noted that this year had been a “particularly challenging one for active investors” because of share price movements in the largest US technology stocks. Alliance’s chosen fund managers have holdings in Google’s parent company, Alphabet, Microsoft, Amazon and Facebook, all of which have a powerful influence on the overall market performance because of their size.
However, the trust points out that the overall holdings in these “megacaps” technology companies are still small. Alphabet is the largest at 2.4 per cent of Alliance’s overall portfolio and its strategy of having a group of different fund managers means it is “unlikely to ever be significantly overweight mega caps”.
The trust also moved capital from fund managers focusing on growth stocks to those focusing on value stocks, “to ensure that the portfolio continues to remain balanced” after strong gains in growth stocks since the beginning of 2018.
Alliance Trust, which will remain based in Dundee after the sale of ATS and has offices in Edinburgh and London, went through a turbulent time earlier this decade. The activist investor Elliott Advisors built up a stake and pushed for boardroom change. As a result, its chief executive, Katherine Garrett-Cox, left in 2016 and was not replaced. The board, led by Lord Smith of Kelvin, the chairman, is now made up of only non-executive directors and the trust started buying back shares from Elliott last year. This legacy still weighs on the shares, according to analysts at Canaccord Genuity, who rate the shares a “buy”. The shares rose 3p, or 0.4 per cent, to 730p yesterday.
Alliance Trust has increased its dividend for 51 years in a row, up to 13.16p last year from 12.77p in 2016, providing a yield of 1.76 per cent. The company has returned to its core principles of picking growth stocks and increasing its dividend. Tempus has twice recommended Alliance as a “buy” in the past year.
ADVICE Hold
WHY The strategy to streamline the business and focus on equity portfolio has been executed
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