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Shares in IAG are off their best levels, having retreated from another attempt to climb back above the 640p cloud-line to revisit recent 19yr highs of 676p. This as CEO Willie Walsh introduces upgraded mid-term guidance (2018-2022 vs 2016-2020 prior) at today’s annual capital markets day. Average annual profits (EBITDAR) of €6.5bn are 22.6% higher while Equity Free Cash Flow of €2.5bn is at the top end of the current €1.5-2.5bn range.
However, CAPEX guidance of €2.1bn per/annum is up by more than profits, +23.5%, as the group spends for growth, all the way from budget (Level) to business. This explains higher expectations for ASK (Average Sales per KM; +5% annually versus +3% previously) but also the absence of upgrades to a targeted 12-15% operating margin, 12% EPS growth and 15% Return on Invested Capital. Airlines are a long term game; nimble they are not. So we may have to wait until the next such update for upgrades to the trio. This is perhaps why the shares are off their highs and why shares in peer Air France trade lower despite consensus beating Q3 results.
Then again, recent sentiment towards European flag carriers has been better than that for the previous sector darlings, the discount rivals (e.g. EZJ/RYA). The latter also trade flat to down, likely digesting a brace of more positive outlooks from flag carriers as a potential threat.
Mike van Dulken, Head of Research, 3 Nov 2017
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
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