Small Cap Value Report (Fri 22 Feb 2019) - Ryanair how-to guide, FLYB, MERL, NSF/PFG

Friday, Feb 22 2019 by
80

Good morning!

Today would be a good choice for a duvet day given the lack of news flow, but I will keep the show on the road.



Ryanair Holdings (LON:RYA)

Did anybody notice that Ryanair Holdings (LON:RYA) was fined €3 million by the Italian authorities?

As a frequent flyer and occasional Ryanair customer, it's nice to have a moan about it sometimes.

For context though, I do celebrate the era of cheap air fares which was created and sustained by Michael O'Leary. While it doesn't happen as frequently as it used to, I still fly with Ryanair from time to time, when their offer is too good to pass up.

Indeed, last month they brought me and my lady to Athens for a bargain price - no complaints about that at all!

But where they let themselves down a little bit is that they have turned the booking process into an IQ test and a test of your nerves. Booking a flight is now a game in which they try to tempt you and trick you into buying things you don't necessarily want, and you try to spend as little as possible without making your flight experience completely miserable.

For example, this is what I was greeted with when I put a dummy flight into their system this morning, and clicked on an offer advertised as "from €19.99".

5c6fcec8d8334RYA_20190222.PNG

Hmm. This is less attractive than it seemed at first glance!

If I spend €19.99, then I get the "lowest fare" but it looks like I only get to bring "one small cabin bag" on board. How is that going to be appropriate for an international flight?

On the other hand, do I want Priority & 2 Cabin Bags and a 20kg check-in bag, and a reserved seat with the Plus option? Not really.

The way to beat them is to bravely click the cheap Standard Fare option for both the outbound and return flights, then Continue.

On the next page, Ryanair will give you the option you really wanted: the 10kg cabin bag. It's cheap and it comes with priority boarding for €10.

5c6fd0a1ac0b0RYA_20190222_B.PNG

After insisting that you don't want to pay to reserve a…

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Disclaimer:  

All my own views. I am not regulated by the FSA. No advice.

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Ryanair Holdings plc (Ryanair Holdings) is a holding company for Ryanair Limited (Ryanair). Ryanair operates an ultra-low fare, scheduled-passenger airline serving short-haul, point-to-point routes between Ireland, the United Kingdom, Continental Europe, Morocco and Israel. Ryanair provides various ancillary services and engages in other activities connected with its core air passenger service, including non-flight scheduled services, Internet-related services, and the in-flight sale of beverages, food and merchandise. Ryanair markets accommodation services and travel insurance through its Website. It provides hotel and accommodation services. Ryanair provides its own aircraft and passenger handling and ticketing services at Dublin Airport. As of June 30, 2016, Ryanair had a principal fleet of over 350 Boeing 737-800 aircraft and offered over 2,000 scheduled short-haul flights per day serving approximately 200 airports throughout Europe. more »

LSE Price
€10.42
Change
2.4%
Mkt Cap (£m)
10,377
P/E (fwd)
11.2
Yield (fwd)
n/a

Flybe Group PLC is a United Kingdom-based company. The Company is a shell company.

LSE Price
0.964p
Change
 
Mkt Cap (£m)
2.1
P/E (fwd)
n/a
Yield (fwd)
n/a

Merlin Entertainments plc is a United Kingdom-based entertainment company. The Company operates through three business segments: Midway Attractions, LEGOLAND Parks and Resort Theme Parks. Its products include Midway attractions, which are smaller, indoor attractions located in city centers or resorts, and Theme parks, which are larger multi-day destination venues, with on-site themed accommodation. The Midway Attractions segment operates approximately 100 attractions in over 21 countries across over four continents. The LEGOLAND Parks includes LEGO themed accommodation, rides and shows. The LEGOLAND Parks operate over six attractions in approximately five countries across over three continents. The Resort Theme Parks include accommodation, rides and shows. The Resort Theme Parks segment operates over six attractions in the United Kingdom, Germany and Italy. Its subsidiaries include AAE Unit Trust, AQDEV Pty Limited and Aquia Pty Ltd. more »

LSE Price
357.6p
Change
7.6%
Mkt Cap (£m)
3,405
P/E (fwd)
15.8
Yield (fwd)
2.4



  Is LON:RYA fundamentally strong or weak? Find out More »


50 Comments on this Article show/hide all

brucepackard 22nd Feb 31 of 50
3

Thanks. Very much agree on Ryanair. The internet allows customers to go online and compare prices, and companies respond by making their pricing less transparent.  

Companies think that they are being clever.  But eventually consumers will vote with their wallets, and avoid the worst companies. For instance, I have flown Ryanair in the past, but it is really a last resort and has to be a really cheap price for me to go through the horrible customer experience.

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luckym 22nd Feb 32 of 50
6

Thank you for your observations on Ryanair Holdings (LON:RYA), Graham. I agree with them apart from giving credit to Michael O'Leary for starting the era of cheap air fares. Easyjet (LON:EZJ) started up around the same time and Stelios Haji-Ioannou freely gives credit to Southwest Airlines in the USA for their innovation in this area many years earlier, and which he copied. I'm not a frequent flyer but I've used Easyjet quite a lot and Ryanair when I have to. I've always wondered why other airlines didn't just copy the Easyjet web-site for booking flights. In my opinion it beats the others hands down, and always has. I hold no shares in airlines but wished I'd bought Easyjet when I started using their services many years ago. Not as much as I regret not buying Apple shares when I started using Macs in the mid-1980's mind you.

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gbjbaanb 22nd Feb 33 of 50
8

In reply to post #451343

I always thought it was Freddie Laker who started the "heap flights revolution. UK to USA for £32. (admittedly, back when £32 was worth something!)

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Trident 22nd Feb 34 of 50
2

In reply to post #451328

it does look like IG Group (LON:IGG) shareholders like myself are having a tough time climbing back up from each market blow. Hopefully Jan Interim results guidance will not be blown off course.

Been cut quite a bit by falling knives on this one

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JohnEustace 22nd Feb 35 of 50
5

The following clip from Fascinating Aida contains a lot of swearing on the subject of cheap flights and makes me laugh quite a bit..
https://youtu.be/ZAg0lUYHHFc

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rmillaree 22nd Feb 36 of 50
1

In reply to post #451353

IG Group (LON:IGG)

Looking at the stockopedia numbers the 2019 and 2020 profit expectations have been steadily declining for some time now with even lower numbers appearing this month.

with regard to january guidance holding good - did they not just say they expect sales to be lower and expenses would be the same - that doens't exactly seem any kind of useful guidance whatsoever without a range for their estimates of earnings. Perhaps more info is there and i failed to find it by looking at the outlook section.

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muckshifter 22nd Feb 37 of 50
9

I've flown with Ryanair many times - probably getting on for 100 by now, and throughout the years that I've used them it has been the game that Graham refers to in the header, with Ryanair trying new tricks at least every six months to get extra cash from you.

However, there comes a point where enough is enough, and I believe Ryanair are now on a slippery slope which will lead to a drop in share value (last week we flew Easyjet for the first time in ages).

The jiggery pokery with bags is bad enough, but to me Ryanair's continuous battle stretching over probably the last five years, to make people pay for an allocated seat takes the biscuit. It started about five years ago with free seat allocation only for check in reduced to less than 2 weeks before flying - the obvious intention being that most people go on two week holidays and would feel forced to book seats at least for the return. A year or two later this slot for online check in with free seat allocation was reduced to only seven days before flying, with the same obvious intention. Then it was reduced to three days, then to two days - all with the same motive, imho.

But this technique didn't work on some battle hardened Ryanair customers. During all of that period up to approximately a year ago, my wife and I would use the reduced check in slot. Each time, ie, many many times, until a year ago, we were allocated free seats together, with the worst situation being once either side of the aisle.

Then a year ago Mr O'Leary came up with a new ruse. If you used free check in without paying for an "allocated" seat he would send us to opposite ends of the aircraft. He came up with a real load of bullshit to try to justify this when questioned by consumer organisations, but it was soon seen as the bullshit it was, by regular customers.

Four times in the last year, we have been sent to our respective ends of the aircraft as punishment for not paying up, only to find that the person sitting next to my wife at the back was the partner of the person sitting next to me at the front - with the obvious solution to that punishment regime, quickly undertaken. Very clear evidence imho, that this is just a deliberate ploy to get extra cash with no truth in the justification offered.

But the baggage nonsense seems to me a step to far, so it's goodbye Mr O' Leary.

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BRIAN BAKER 22nd Feb 38 of 50
2

I understand that the Credit Card Companies were holding back £50 Million of Flybe Ticket money in case the company went into liquidation. Can anyone tell me what has happened to the £50M now that the company has been sold for £2.2M?

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timarr 22nd Feb 39 of 50
10

In reply to post #451373

I understand that the Credit Card Companies were holding back £50 Million of Flybe Ticket money in case the company went into liquidation. Can anyone tell me what has happened to the £50M now that the company has been sold for £2.2M?

Not quite, the money was collateral against flights that have been paid for with credit cards and not yet flown. Most of it will flow back to customers.  Broadly it works like this ...

The "Credit Card Companies" referred to are not Visa or Amex but Acquirers. Acquirers have a relationship with the merchant (Flybe in this case) and they direct a credit card payment request to the right payment scheme (Visa, Amex, etc) who pass the payment request onto the bank.  When the actual funds are settled they're moved from the bank, via the payment scheme to the Acquirer who then pays the merchant.

For credit cards, as we all know, there is a right of refund - a 'chargeback' in the industry lingo. This can happen for many reasons but in this instance it means that every customer who paid with a credit card and didn't get their flight has the right to contact their bank and request their money back. The bank pays out to the cardholder and then sends a request for payment to the Acquirer.

Normally the Acquirer pays the bank and then reclaims the money from the merchant. But if the merchant has gone bust then the Acquirer is on the hook. Because of this if Acquirers decide that the merchant is looking a bit dodgy then they'll ask for collateral - actual cash - upfront to cover the chargeback liability. Which is what happened to Flybe.

Broadly the amount of cash that the Acquirer will require will match the risk exposure that they're taking. So if Flybe have £50 million in unflown flights on credit cards then Acquirers would want some function of that based on their risk assessment. In high risk cases then they'll probably want to have all of their risk covered, especially if they can't get insurance cover (which was probably the case with Flybe).

The Acquirer can receive chargeback requests for up to 120 days after the payment - so roughly 4 months. Only after 4 months would they know how much of the collateral has remained unclaimed - at which point it would be refunded to the administrators.

I would be extremely surprised if much, if any, money flows back to Flybe as I'd imagine that nearly every Flybe credit card customer will be exercising their chargeback rights. Indeed, if the Acquirers were a bit lax on collateral they may end up being creditors themselves.

timarr

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Fangorn 22nd Feb 40 of 50
1

In reply to post #451368

"I've flown with Ryanair many times - probably getting on for 100 by now, and throughout the years that I've used them it has been the game that Graham refers to in the header, with Ryanair trying new tricks at least every six months to get extra cash from you.

However, there comes a point where enough is enough, and I believe Ryanair are now on a slippery slope which will lead to a drop in share value (last week we flew Easyjet for the first time in ages)."

Wow you're patient

100 flights.

Such behaviour would be enough for me after 2 -3 flights and I'd never fly with them again. As I have never done with British Airways since 1980's....

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CHIVAAR GAMI 22nd Feb 41 of 50

In reply to post #451243

Look at the group accounts

https://beta.companieshouse.gov.uk/company/06772302/filing-history

Revenue figure is ok

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ANDY1861 22nd Feb 42 of 50
3

I went with flybe last weekend and they are worse than any other carrier they checked every case with a box placed over each case. Several people caught out with cases two big that resulted in £50 charge, caused delays boarding aircraft and both flights delayed due to this issue would avoid flybe next time flying!

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DickBounder 22nd Feb 43 of 50

In reply to post #451268

Hi Graham

re Flybe

The rational for continuing to hold the shares may be to qualify to vote at the forthcoming general meeting as announced in the rns released at 5pm this evening. The hope is that an independent new Chairman be appointed so he can scrutinise the actions of the current board in respect to how the sale of the trading subsidiaries came about. However, if in the meantime enough shareholders vote to accept 1p per share, then the company will be wound up before a new Chairman can be appointed.

A more general point is that the board gained shareholder approval to move from a premium listing to a standard listing. This means shareholders have no opportunity to vote to oppose the disposal of assets or the winding up of the company. However, I imagine very few private shareholders would have taken part in the vote to approve the move to a standard listing as it seems many brokers were not contacted by Flybe and therefore the brokers did not contact their clients to invite them to vote by proxy.

Many shareholders will most likely be more proactive chasing their brokers to allow them to vote to get a new Chairman appointed and hopefully to kick out the incumbent before it is wound up. Then there may be some hope that the board can be held to account for their behaviour as outlined by Hoskings in part 3 of today's requisition of a general meeting circular.

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DJCP 23rd Feb 44 of 50
1

Couple of snippets:

1) Re Duke Royalty (LON:DUKE) - I've recently been looking into the Royalty partners, to (try to) obtain figures from their accounts for the past 3 years, not only see if they're able to service the royalties, but also if there's an upward trend in revenue/profits etc. A bit more difficult than going through an Annual Report, and even more so with the overseas companies !

2) Re Flybe (LON:FLYB) - The 'shareholder approval to move from a premium listing to a standard listing' in hindsight, seems calculated. I wonder if this proposal is searchable on AGM notices/RNSs, and if so would enable investors to have a serious think as to why.

Keep up the good work Graham whilst Paul's away, although he may come back with investment idea for Zimbabwean mining companies ! lol

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peterg 23rd Feb 45 of 50

In reply to post #451383

I would be extremely surprised if much, if any, money flows back to Flybe as I'd imagine that nearly every Flybe credit card customer will be exercising their chargeback rights.

I don't think I understand this point, Tim. Since Connect will be running the operations "as before", at least for now, those booked flights should be flown, so there should be no chargeback due to customers, in most cases. Though that does raise the question of where the money flows to - Connect who operated the flight, or Flybe who initiated the booking? I'd suspect the former, so either way nothing much is going to come back to Flybe

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timarr 23rd Feb 46 of 50
4

In reply to post #451438

I don't think I understand this point, Tim. Since Connect will be running the operations "as before", at least for now, those booked flights should be flown, so there should be no chargeback due to customers, in most cases.

Hi Peter

I'm not really familiar with what's happened at Flybe (I'd rather buy a lottery ticket than airline shares): I'd lazily assumed that they'd gone into administration and customers had lost their flights.

But having has a quick look at the situation I agree with you. Either Flybe assign the Acquirer collateral to Connect - essentially it's deferred income on flights already booked - or the deal collapses and the customers claim the chargeback. Nothing comes back to Flybe either way.

What I'd note, though, is how valuable that credit card protection is. I can never understand why people buy online using debit or Paypal, or even use a Paypal type intermediary for credit cards, it's just an unnecessary risk.

timarr

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BlackKettle 23rd Feb 47 of 50
2

In reply to post #451408

Also FlyBe's carry-on case size limit is just that bit smaller than almost every other airline. So your bag that you've been happily using on Ryanair / easyJet (for many years) may result in extra charges with FlyBe.

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muckshifter 23rd Feb 48 of 50

In reply to post #451398

Fangorn,
Our tolerance of Ryanair's foibles was mostly due to the fact that they had more flights to and from airports that suited us, as well as the fact that they tended to be lower cost, with flight times that avoided 4am starts etc. We used others, in fact we were due to fly Monarch a few days after they went bang, but the latest ruses by Ryanair did the trick and made us look harder at alternatives.

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skinner66 23rd Feb 49 of 50

re; ryanair the added extra's are there con trick. im off to benidorm 5 march and the extra's are a joke, i wont ever book again ryanair,also they said if you dont book seats and we over booked you may not get on flight this needs to be sorted as blackmail. at least jet2 include everything .

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BRIAN BAKER 25th Feb 50 of 50

In reply to post #451383

Thanks for the very clear in depth reply, I was hoping that I might get some of my money back!

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About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »

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