Interactive Investor

ii view: will British Airways owner IAG keep climbing?

6th March 2023 16:08

by Keith Bowman from interactive investor

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Despite a 50% share price gain since October, the Anglo-Spanish airline is still down 60% over the last five years. We assess prospects. 

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Full-year results to 31 December

  • Revenue of €23.07 billion (£20.5 billion), up from €8.46 billion last year
  • Operating profit of €1.26 billion (£1.12 billion), up from a loss of €2.8 billion
  • Net debt down by €1.6 billion to €10.4 billion 
  • Total liquidity rose 17% to €13.99 billion
  • No dividend payment

Guidance:

  • Expects full-year operating profit of between €1.8 billion and €2.3 billion 
  • Expects net debt to stay broadly unchanged at €10.4 billion by the end of 2023

Chief executive Luis Gallego said:

"2022 was a year of strong recovery, driven by sustained leisure demand and markets reopening. At this point of the year we continue to see robust forward-bookings, while also remaining conscious of global macro-economic uncertainties. 

"With the acquisition of Air Europa now agreed but subject to regulatory and other approvals which could take around 18 months, we are intending to welcome another leading airline to the Group. “This acquisition will enable us to grow Madrid as a hub, offering a gateway to Latin America and beyond, with benefits for customers, employees and shareholders.

ii round-up:

International Consolidated Airlines Group SA (LSE:IAG) is one of the world's largest airline companies.

It operates 381 short haul and 177 long haul aircraft flying around 94 million passengers annually to over 250 destinations.  

It is a Spanish registered company with shares traded on the London and Spanish Stock Exchanges. Brands include UK based British Airways, Spanish airlines Iberia and Vueling, and Irish based Aer Lingus. It has now agreed the acquisition of the remaining stake in Madrid based airline Air Europa.  

For a round-up of these latest results announced on 24 February, please click here

ii view:

Founded in 2011 following a merger between British Airways and Iberia, IAG today employs over 50,000 people and is a constituent of both the FTSE 100 and IBEX 35. Along with its various airline brands, it also owns loyalty reward brands Level brand and Avios. Passenger revenues account for the bulk of sales at 84%, followed by cargo revenues at 7% and other revenues from its loyalty and BA holidays businesses the balance. 

For investors, both economic and geopolitical uncertainties warrant consideration, with further interest rate rises possible and the war in Ukraine heightening tensions between the US and China. Costs for businesses generally remain elevated, pressure to reduce industry emissions under climate change concerns persist, while net debt of €10.4 billion (£9.26 billion) compares to a stock market value of under £8 billion. 

On the upside, IAG enjoys diversity of both brands and geographical reach and there's been a clear recovery in demand from the pandemic. A push towards more fuel efficient and climate friendly twin engine planes is ongoing, the acquisition of Air Europa adds growth potential, while net debt did reduce over this latest year and group liquidity improved. 

The airline industry is cyclical, so should do well when the market begins to price in economic recovery. Indeed, consensus analyst estimate of fair value stands at 190p per share implies room for optimism. However, the travel industry remains volatile and cautious investors might be inclined to await evidence of a broader, sustainable recovery.

Positives: 

  • Strong and diverse brands
  • Increased group liquidity

Negatives:

  • Uncertain economic outlook 
  • Dividend payment remains suspended

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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