Man GLG’s Rory Powe on top holding Ryanair’s ‘very good year’

Powe

Rory Powe says Ryanair is having “a very good year” despite the “wake-up call” the airline had in September when it made headlines for a raft of flight cancellations on the back of pilot walkouts and saw its share price plummet 10 per cent.

Powe, who holds 7 per cent of the £1.2bn Man GLG Continental European Growth fund in Ryanair, making it the largest position, admits the airline had a “testing period” but says he used it to add to the holding.

“Ryanair’s share price was 14.50 at the end of 2016 and it was 17 when I last looked,” Powe says. “That’s not bad performance; year to date the share price is up more than 17 per cent.

“Ryanair is having a very good year. It would have been better if it weren’t for the cost increases…Our position in Ryanair fell 70 basis points when the share price dropped 10 per cent but we brought it back up to 7 per cent.”

With pilots offered pay rises of around 20 per cent, Powe says the cost per passenger will still only be €28, €12 less than its nearest competitor, Wizz Air.

“It was a wake up call for Ryanair,” Powe says. “They made a mistake and have taken their pilots for granted, but they are fixing that. The upshot is they have a competitive advantage. They can go on making excellent profits per passenger…The European short haul market grows each year. It is more affordable than it used to be with more routes and better frequency.

“Ryanair has a fleet of 400 aircraft, one of the youngest in the industry. It is a fantastic advantage and a cash generative business.”

On the wider European market Powe says that while there the economy is recovering, consumers remain hesitant.

“Consumers are not exhibiting animal spirits, far from it. There is still an 8.8 per cent unemployment rate and a lot of nervousness out there. It is not a full-blooded economic recovery. Consumers are just spending money on different things. Less money is being spent on stuff and more on experiences.”

The Continental European Growth fund, which celebrates its 20-year anniversary next year, has been run by Powe since September 2014. It targets above average long-term capital growth by investing in European equities.

Powe typically takes a five-year view on each position and turns over one third of the portfolio each year to introduce new ideas, replacing names that have “done their job” or where the traction being achieved in the business is a concern. There is a strict limit on the number of holdings, which is capped at 40.

“We only have up to 40 positions because genuinely good companies are quite rare. Lets not dilute the strength of the portfolio,” Powe says.

“We are uncompromising in our insistence in only investing in Europe’s strongest companies. We are quite contrarian. The fund looks very different to the index. We are deliberately sticking our neck out against the benchmark…The active share has always been above 90 per cent.”

He adds: “The global economy is growing at 3-5 per cent and the European economy is seeing a robust recovery. For a company to be attractive it needs to deliver superior growth to what is available from the index and the wider universe.”

Recently, Powe has sold out of companies where the growth has not been adequate, such as Assa Abloy, and added to faster-growing firm Christian Hansen, a bioscience company and the second largest holding at 6 per cent.

“Assa Abloy is the world leader in locks with 15 per cent market share. But with 4 per cent organic growth, it no longer impresses us enough.

“We have added to Christian Hansen. Its organic growth has accelerated. For the year ending August 2017 its full-year results showed its revenue top line growth was 10 per cent. That’s impressive. We are particularly impressed that we think it can grow at least 8 per cent for the next three to four years, driven by all divisions.”

The fund has returned almost double the sector average over three years, with returns of 83 per cent compared to the 44 per cent average of the IA Europe Excluding UK sector. Over one year the fund has slightly lagged the sector, returning 22.6 per cent against the 24 per cent average, FE data shows.