Are IAG shares worth buying now?
British Airways parent company IAG, still in the midst of its recovery, has attracted cautious optimism from research teams.
- International Consolidated Airlines Group (LON: IAG) share price hits 156.42 pence on Monday (07 September 2021)
- Its unit British Airways plans to set up a short-haul carrier at a London airport
- JPMorgan favours IAG for the long term, due to its ‘very low’ valuation multiples
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Will IAG shares take off again?
Shares of International Consolidated Airlines Group, or IAG, rose 0.4% to finish at 156.42 pence on Monday.
The Anglo-Spanish airline holding company - which owns carriers such as British Airways, Aer Lingus, and Iberia - has seen its stock lose 25.5% in the past six months.
Last Tuesday (31 August 2021), IAG shares slumped 2.5%, amid a rout among travel stocks after European Union (EU) states said they would recommend reimposing travel restrictions on American tourists.
EU governments agreed to remove the US from their safe travel list, following a surge in new Covid-19 cases. Airlines and travel firms had been calling for a full reopening of lucrative transatlantic routes.
How do analysts view IAG’s prospects?
As of Monday, out of 29 analysts, 21 rated IAG shares ‘buy’, seven suggested ‘hold’, and one recommended ‘sell’. Their average 12-month target price stood at 230.53 pence per share, according to Bloomberg data.
Bullish research teams with ‘buy’ or ‘overweight’ calls included Barclays with a 230p target, Liberum with a 215p target, and Credit Suisse with a 256p target. HSBC suggested ‘buy’, but cut its target to 220p, from 240p.
Some research teams are seeing ‘attractive valuations’ for UK airline stocks, which had been volatile of late amid concerns of new travel curbs, Reuters reported.
Credit Suisse analysts believe IAG has about four more years of cash-burn coverage and thus should not need to raise equity this year.
However, IAG’s position ‘is heavily dependent on the transatlantic market fully reopening, meaning leverage may peak in late winter’, they wrote.
JPMorgan maintained a long-term ‘overweight’ rating due to IAG’s ‘very low’ valuation multiples, but flagged that IAG’s recovery could be slower than expected.
IAG ‘has taken radical action to cut costs’, JPMorgan said. ‘This underpins our view that it can achieve attractive EBITDA margins once the market begins to normalise, which we expect in the next few years.’
British Airways to form new short-haul arm?
British Airways (BA) last Friday said it was considering forming an independent subsidiary for its short-haul operations at London’s Gatwick airport.
The new Gatwick-based unit, also to be branded British Airways, will offer the same standard of service, the airline said. It is discussing the proposals with unions.
BA said an independent subsidiary ‘will enable us to both maintain the British Airways customer experience and be competitive in this environment’.
Its operations at Gatwick have not turned a profit for about 10 years, even before the Covid-19 pandemic.
Reuters noted that BA has struggled to compete with low-cost airlines at the airport, and creating an independent short-haul airline there will enable BA to reduce its cost base, such as staffing bills.
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*Based on revenue excluding FX (published financial statements, June 2020)
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