IAG still flying high

IAG will announce its first-half results on 31 July, and the company is set to soar higher. 

A British Airways plane taking off
Source: Bloomberg

The airline is going strong, and it is evident that Willie Walsh’s transformation plan is working. In February 2015 the company revealed that last year’s full-year operating profits nearly doubled and the forecast for 2015 was increased by 20%. In the first three months of 2015, the airline posted its first ever first-quarter profit, as operating profit for the period came in at €25 million compared with a loss of €150 million for the same period last year.

As Alastair McCaig stated, Mr Walsh’s cost-cutting plan at Iberia Airlines has helped the group stay in the black. The low-cost carrier Vueling is also performing well in the face of stiff competition from Ryanair and easyJet, and the former has a series of winter price cuts in the pipeline; all budget airlines will have to make an extra effort to stand out.

The aviation industry as a whole is witnessing more competition, as higher end airlines like British Airways and Lufthansa are trying to entice some bargain hunters, while Ryanair and easyJet are making themselves more attractive to business customers.

The weak oil price has helped IAG, but at the same time the strength of the dollar has taken away some of the benefits. The price of oil is showing no sign of surging higher, and major oil-producing nations seem content to keep supply. The Federal Reserve is tipped to raise interest rates this year, and this will keep the greenback expensive.

Ryanair has finally given the greenlight to IAG to acquire its 29.8% stake in Aer Lingus, and this brings IAG one step closer to taking over Aer Lingus, but approval is still needed from the EU competition authorities. Before taking the top job at British Airways, Willie Walsh ran Aer Lingus and he has been keen to get it under his control again.

When IAG reveals its first-half results the market is expecting revenue of €10.4 billion, and adjusted net income of €337 million. The airline will report its full-year results in February 2016, and traders are expecting revenue of €21.69 billion and adjusted net income of €1.49 billion. These forecasts represent a 7.5% increase in revenue and a 76% jump in adjusted net income.

Investment banks are very bullish on IAG, and out of the 26 recommendations, 21 are buys, four are holds, and one is a sell. The average target price is £6.51, which is 18% above the current price. Equity analysts are also very bullish on Ryanair, and out of the 25 ratings, 20 are buys, four are holds, and one is a sell. The average target is €13.56, which is 9.4% above the current price.

IAG’s share price has been rising since September 2012, and £6 is the initial target. Should that level be cleared then the record high of £6.29 will be in sight. If the stock fails to make an attempt on £6 and it drifts lower, 480p will act as support. 

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