Where next for IAG shares after its 22% fall?

IAG’s share price is down 22% since last week, hit by a capital increase of nearly 3 billion new shares. Wall Street’s consensus remains confident in the company’s future but major risks persist for the airline industry.

IAG shares have fallen under 100p after a €2.74 billion rights issue was completed to help the company keep its finances on track ahead of a challenging future

  • IAG’s capital increase operation was criticised by investors because of the major discount it offered on the share price
  • Wall Street consensus is positive on IAG shares with a ‘buy’ rating. Yet fears of a new wave of coronavirus in Europe divides analysts on the price target.

International Consolidated Airlines Group (IAG) shares have tumbled following the completion of a €2.741 billion rights issue on Monday, which aims to fight against the consequences of the pandemic crisis which greatly impacted the airline industry.

IAG’s share price closed yesterday at 100.6p on the London Stock Exchange and is still far from recovered following two days of big losses: down 13.6% on Friday, and another 13.5% on Monday. On Tuesday, IAG stock even touched a 2009 low at 92.44p.

Why IAG’s rights issue panicked its investors

The capital increase of nearly 3 billion new shares was designed to strengthen IAG’s financial state ‘with more resilience, greater flexibility and the ability to make the right operational and strategic decisions for the long term benefit of its stakeholders’, said the company in a statement.

However, it seems that its investors didn’t interpret it in the same way. Like Stephen Furlong, analyst at Davy Research, who was disappointed by the operation and its heavy discount.

He said to the Financial Times that ‘the key was just to raise money no matter what, the price was just a secondary thought’. The nearly 36% discount offer on the new shares was steeper than Furlong had expected and the shareholder dilution was also more than he anticipated.

It seems that the share issue has sent a bad signal to IAG’s investors regarding the British Airways owner’s future. As recently as last week, British Airways chief executive Alex Cruz told MPs that IAG was still fighting to survive.

IAG, which plans to cut 13,000 jobs at British Airways to recover from the pandemic, is expecting its travel capacity to fall 63% in 2020 from in 2019, and to decline 27% in 2021 compared with 2019.

IAG share price outlook remains positive despite coronavirus threat

Its capital hike will certainly help the company to weather the storm which is far from coming to an end, but will it be enough to sustain its share price in the months to come?

Analysts at Berenberg believe that IAG fundamentals are strong enough to expect a recovery of its share price within the next 12 months. Last week, they maintained their ‘buy’ recommendation with a 260p price target, up more than 100% from its current level at 100.6p.

UBS Group also has a ‘buy’ recommendation with a 192p price target. Goldman Sachs and Citigroup are less optimistic, having recently reiterated their ‘neutral’ rating with 140p and 220p price targets.

The disparity of the price target among Wall Street analysts highlights the difficulty to predict the future of the industry as it is completely dependent on the coronavirus pandemic.

Air travel demand has partly recovered this summer, but coronavirus cases have risen again in September, forcing the UK and several others European states to adopt new restrictions in order to contain the pandemic.

A second wave of the pandemic with new lockdowns would be catastrophic for the airline industry. To keep the borders open, and as an alternative to the quarantine rules, the International Air Transport Association (IATA) - which represents around 290 airlines - has called for Covid-19 testing for all international passengers before flights.

How to trade stocks with IG

Looking to trade IAG and other stocks? Open a live or demo account with IG and buy (long) or sell (short) shares using derivatives like CFDs in a few easy steps:

  1. Create an IG trading account or log in to your existing account
  2. Enter ‘International Consolidated Airlines Group’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

Alternatively you can invest in UK shares from just £3 with our share dealing platform.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Explore the markets with our free course

Learn how shares work – and discover the wide range of markets you can trade on – with IG Academy's free ’introducing the financial markets’ course.

Put learning into action

Try out what you’ve learned in this shares strategy article risk-free in your demo account.

Ready to trade shares?

Put the lessons in this article to use in a live account – upgrading is quick and easy.

  • Trade on over 16,000 popular global stocks
  • Protect your capital with risk management tools
  • React to breaking news with out-of-hours trading on 70 key US stocks

Inspired to trade?

Put your new knowledge into practice. Log in to your account now.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.