logo-loader

UBS sees plenty of reasons to upgrade IAG

Published: 08:08 29 Apr 2019 EDT

british airways
IAG management have grown earnings every year since the company’s formation

Pressure on International Consolidated Airlines Group PLC’s (LON:IAG) share price “is overdone”, said UBS, and should ease off for a number of reasons in coming months.

Despite a 9% cut to its earnings per share forecasts for the British Airways owner’s current year due to changes in currencies, fuel price and other changes, the Swiss bank said its estimates were quite conservative, especially if IAG has a strong summer season.

READ: RBC upgrades IAG to ‘outperform’, thinks shares could surpass £10 over longer-term

Indeed, the UBS analysts believe summer demand environment “should be supported by less geopolitical uncertainty in the UK over summer period”.

There are other reasons to be cheerful, the analysts volunteered, are the “potential” for further industry consolidation and the recently improving trend on pricing for North Atlantic flights and IAG’s planned European capacity discipline over the summer that “gives us confidence in our positive full year pricing”, predicting a 2% price increase compared to the market’s current indication of a 2% decline. Research by UBS indicates that North Atlantic yields for May and June are running at circa 5% and with a supportive capacity outlook.

UBS also took confidence from history, with IAG’s management having grown earnings since the company’s formation and current 2019-2023 targets for free cash flow, EPS and return on invested capital “suggest there could be earnings upside to UBS forecasts”.

What’s more the analysts see a “low” ability for the shares to sink any lower as they are trading close to their historic lowest valuation multiples, while investors buying soon would also receive a sizeable dividend payment of €0.515 due on 8 July.

READ: British Airways owner IAG declares €700mln special dividend as 2018 profits rise 9.5%

With the shares climbing from a recent two-year low of 500p but still down 20% since early February and 26% lower than last June’s 52-week peak, UBS analysts upgraded IAG to ‘buy’ from ‘neutral’, keeping their target price of 705p.

Ramp Metals Launches Drilling Program in Pursuit of High-Grade Nickel in...

Ramp Metals CEO Jordan Black joined Steve Darling from Proactive to introduce the company to the public domain and share exciting developments in the mining industry. With a background as a geotechnical engineer and experience in venture capital, including a notable role in taking GoldSpot...

1 hour, 1 minute ago