IAG was comfortably at 2.5 euros per share last week, levels not seen since the outbreak of the coronavirus in March 2020. But the escalation of the war in Israel, which leaves no neighboring country without attacking, increases fuel prices and expands restricted global airspace: two aspects that do not go well for the bottom line of any airline with international activities. However, the market still sees reasons to the company reaches 3 euros per sharea valuation that the airline had not had for more than four years.
He rally The Spanish-British airline’s stock market has been reduced mainly due to the rise in the price of listed crude oil, which could challenge IAG’s costs. However, the airline is characterized by good fuel price coverage. In other words, he has guaranteed a fixed price for fuel for most of 2024 and the rest would have been paid at lower prices than those observed last year (a barrel of Brent recorded an average price of 82.2 dollars in 2023 compared to 81.7 dollars so far in 2024).
The valuations included in the FactSet market consensus still show the good expectations placed on the company, its ability to generate liquidity and the possibility that the company supplements its dividend, recovered after years of drought, with a share buyback once the path to follow to acquire Air Europa. is closed. So, of the last 15 target price revisions the airline has seen since August, only one has been downward, according to FactSet data. In this way, the IAG’s potential on the stock market exceeds 30% after the company’s recent fall which maintains a buy recommendation.
IAG’s capacity (lending factor) will remain at 86% in the current financial year and the next two years, while profits per available seat kilometer (ASK) are expected to increase by 5% compared to the same period previous. In other words, with the same number of tickets sold and the same number of routes and kilometers traveled, the The airline’s revenue would be 8.3 euros compared to 6.6 in 2019; last normalized year before the impact of the pandemic.
However, the group’s rapid growth since 2020 would leave room for a more gradual progression of activity from now on, and as long as geopolitics does not impose restrictions on air travel or affect consumption. He IAG’s ASK ratio in 2025 will be 8.2 eurosaccording to FactSet. “We believe revenues will gradually decline to pre-2028 levels due to increased competition, putting pressure on pricing as aircraft and crew shortages ease,” he said. commented Morningstar, which recently began covering the airline.
On the other hand, analysis firms highlight the evolution of IAG’s profit margins, which has until now been able to pass on most of the costs to the customer. Thus, the operating margin of the first half amounts to 8.9%. Historically, the second half usually shows better numbers for the company due to the summer period, which concentrates more travel and higher ticket prices. With what is expected for the rest of the year, IAG would achieve a margin of 11.7% for the whole of 2024 compared to 11.9% in 2023.
On the other hand, the expected improvement in profits would leave the Spanish-British airline with a debt ratio (net financial debt to gross operating profit) of less than 1.3 times at the end of the year, according to JP Morgan , which would give greater flexibility for IAG compared to its European competitors in the event of a possible sector crisis or recession. Other measures the company should take cushion any sudden and unexpected changes in demand is the high proportion of leased aircraft in its fleet, although if it is forced to compete on price other low-cost airlines, such as Ryanair, will have a greater advantage.
At this point, IAG is the European airline with the greatest potential among the companies that have a purchasing council and will match the profit margin of the Irish Ryanair, which in recent years led the sector in this ratio. In terms of dividend yield, Lufthansa is ahead of IAG with 3.8% compared to 2.8% for the Spanish-British company.
