Ryanair's captain is cheerful but prepare for a spot of turbulence

Impressive Inchcape stays in the driving seat; Ultra share price rise leaves it high enough for now
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The Independent Online

Shares in the no-frills jumbo Ryanair are still airborne, but with passengers getting restive over value for money and a spot of turbulence over Brussels, investors ought to get in the brace position in case of a bumpy landing.

Shares in the no-frills jumbo Ryanair are still airborne, but with passengers getting restive over value for money and a spot of turbulence over Brussels, investors ought to get in the brace position in case of a bumpy landing.

Our cheery captain, Michael O'Leary, reeled off a few more impressive statistics yesterday. Ryanair is flying more than 2 million passengers a month now, with a record 2.04 million in July and 24 million expected over the course of the full year. More than nine out of 10 tickets are sold over the internet (where Ryanair doesn't have to pay anything out to middlemen in the travel agencies). The hope is that Mr O'Leary will have a few more big numbers to recite over the intercom today, when the company reveals profits for the first quarter of the year.

But yesterday's traffic figures suggest that the flight path for the company over the coming years will be trickier than in the past. Investors have already been warned that the strategy is one of ambitious expansion, with cut-price ticket sales and new routes being added to boost passenger numbers, with slightly less emphasis than recently on the bottom line of profit. Already load factor, industry jargon for the percentage of seats filled on the average flight, is falling at Ryanair, down 8 per cent in July from the same month last year.

With the national flag carriers at least making a brave effort to compete on price on some routes, and the vicious competition between the low-cost airlines themselves, ticket prices have fallen and the effects should be felt in this morning's results, albeit offset to some degree by strong growth in the on-board drinks and after-flight services, such as car hire, where Ryanair makes good margins.

Competition is not likely to ease any time soon, bears fear, and the constant drip of negative anecdotes about no-frills services will make life even harder.

Meanwhile, the European authorities are determined to boost compensation for disrupted travel plans from no-frills carriers, while recent European Court rulings have prevented grants to Ryanair from some airports in return for boosting capacity. The cloudy picture means the exalted share price rating is too high.

Impressive Inchcape stays in the driving seat

Inchcape, the car dealership group with a turnover close to £2bn and operations dotted around the globe, seems to be firing on all cylinders.

Inchcape specialises in upmarket brands, including Lexus, Mercedes, BMW and Ferrari, which it retails and services. Only its Sars-hit Hong Kong division did not perform well in the interim results.

A sign of Inchcape's confidence was the 20 per cent rise in the dividend to 12.0p. Pre-tax profit was 17.3 per cent higher at £63.7m, at the very top end of expectations. The company is cash positive to the tune of £52m. There was some expectation that this money would be returned to shareholders, but, aside from the generous hike in the divi, the group said these funds are better spent on acquisitions - such as the six BMW dealerships snapped up yesterday.

That's true. Recent changes to the byzantine regulatory regime governing the car industry in Europe favour bigger, stronger dealers such as Inchcape. Manufacturers are no longer able to restrict the number of dealerships that they award to one company.

Inchcape is unusual for pursuing an international strategy. The justification for this was apparent in the figures: when one territory is down, the others can make up for it. While Hong Kong spluttered, sales in Greece were soaring. In the UK, while the consumer may yet feel the pinch after racking up crazy debts, the combination of cheap financing and car prices that have fallen pretty steeply means that sales are currently strong.

Inchcape shares have motored ahead since May, as investors have acknowledged the group's strengths and the fact that it stands to benefit from the regulatory changes. The stock closed up 17p yesterday at 1115p, putting it on a forward multiple of 10. That's not expensive but, given the recent run and the risks to consumer confidence, it's a hold.

Ultra share price rise leaves it high enough for now

Ultra Electronics prides itself on being in the right space at the right time. It is an expert in the hi-tech electronics increasingly needed for modern warfare and governments' spending on its type of gadgets is sure to continue to grow as a proportion of defence expenditure.

For instance, Ultra is making the cockpit switches, indicators and joysticks for the new Eurofighter. Its system for cooling heat-seeking missiles before use was praised by the US Navy for its performance in Iraq. And the company's fastest sales growth is in "battlespace IT" (mainly communications systems), according to half-year figures released yesterday.

Profit before tax was up 13 per cent to £13.5m in the first six months of the year, on turnover up 8 per cent. However, stripping out acquisitions, sales growth was a less impressive 1 per cent, held back by weak sales of sonobuoys, used to detect submarines.

Defence spending has been on the up, particularly in the US, but this is now fully factored into the Ultra share price. Worse, ballooning budget deficits may force cutbacks to military spending in the medium term, although Julian Blogh, chief executive, argues the company grew profits throughout the Nineties, when defence budgets were cut after the Cold War.

Up 18.5p to a record 540p, the shares are up 30 per cent since we said buy a year ago. The dividend yield for new investors would be barely 2 per cent, so the stock is not worth chasing.

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