The Investment Column: Bail out of Ryanair at this level

Minerva's new strategy may pay off for investors - Time to trim your losses at clothes retailer Asos
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The Independent Online

When we last wrote on Ryanair in the summer of 2003, Michael O'Leary's low-cost airline had just passed the 2 million-passengers-a-month mark. Yesterday, it said that last month it took 2.12 million people to destinations across the UK and Europe. This year, it will have flown more than 27 million passengers. The no-frills market grows apace.

Ryanair is piling on new routes and extra flights, and last week it bought 70 new aircraft that will allow it to double its capacity by 2012. The deal was at what appeared to be a knock-down price - perhaps $25m a plane - from a Boeing desperate to stem its loss of market share. Mr O'Leary boasted he had "hammered" his rival easyJet, which paid a higher price for its most recent new planes and locked in a competitive disadvantage as a result. Ryanair may also make a quick turn through a sale and leaseback of the jets.

So Mr O'Leary feels cocky again, and investors are bullish, too. The small no-frills carriers which flooded into the market failed to make a substantial dent in Ryanair's earnings. Yet. The stronger of the recent entrants could start to generate some of the benefits of scale easyJet and Ryanair have previously had to themselves. Meanwhile, the cheap flights could get more competitive still if debt-burdened consumers cut back on holidays. At least easyJet has cushioned itself with some more upmarket offerings.

Ryanair's earnings growth is forecast at about 20 per cent a year for the next three years, and its shares trade on 15 times the first year's earnings. That perhaps looks reasonable value, but the earnings forecasts are risky. Ryanair already has a pretty poor reputation for service, not helped by Mr O'Leary's belligerent style, and it may not take much more bad publicity to send passengers elsewhere.

We were right to be negative in 2003. The shares have not fully recovered from last year's profit warning, but they have recovered more than enough. Sell.

Minerva's new strategy may pay off for investors

As well as knocking £21m from profits, the collapse of Allders has diverted attention from the rest of Minerva's business, much to management's irritation.

The property company recently walked away from bid talks after failing to get a good price for its collection of London properties, which include a large part of Piccadilly Circus and grand designs for London's tallest tower and an expanded Croydon shopping complex.

Minerva needs to find tenants and perhaps financial backers for its ambitious plans before they will proceed. But there is more hope in a new chief executive, charged with selling off some assets and creating joint ventures and standalone property funds. That is the direction in which value creation lies and the speculative investor might find it lucrative to back the new strategy.

With a net asset value of 350p per share, compared with yesterday's close of 275.5p, there is scope to improve the share price if corporate governance and transparency improves.

Time to trim your losses at clothes retailer Asos

It is impossible at the moment to marry Asos's statement of six weeks ago that the internet retailer expected a "strong finish" to the year following its "most successful" sale ever, with yesterday's profits warning.

There is no suggestion that the company, which sells copycat celebrity clothing to wanna-be Kate Mosses, deliberately misled the market. Worse, its internal systems appear to be in chaos. Nick Robertson, chief executive, said the company had struggled to cope with sales which are growing at about 140 per cent a year.

Asos's supply chain was spread across four warehouses, a cobbled together solution to its fast growth that proved to be inadequate and badly managed. Stock that should have sold at full price before Christmas was left in the warehouse, forcing the company to heavily discount its Christmas party dresses "across January and February", according to yesterday's statement.

On 21 January, Asos was confident it would deliver £1.55m of pre-tax profit, in line with its broker's forecasts. Yesterday it slashed that guidance by up to 33 per cent. The stock, the best performer on the whole stock market last year, was off 7p to 58p yesterday.

Had the company been able to be more open about its warehouse problems in January, small retail investors would surely not have been nursing such big losses yesterday. Until Mr Robertson has figured out how to run the bigger business he has created, sell.

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