IAG ups long-term targets for cash flow, capex

International Consolidated Airlines Group (IAG) upped its long term cash flow targets on Friday ahead of a capital market day briefing to investors and analysts.

The British Airways and Iberia operator said its long-term planning goals for 2018-2022 now include equity free-cash flow average of €2.5bn per year, compared to an annual range of €1.5-2.5bn for 2016-2020 previously.

IAG also plans more capital expenditure, with a new annual average capex target of €2.1bn versus an average of €1.7bn for 2016-2020 as it plans to grow available seat kilometres roughly 5% per year, up from the 3% previously guided for 2016-2020.

Other updated guidance included average earnings before interest, tax, depreciation, amortisation and restructuring (EBITDAR) costs of approximately €6.5bn per year, up from an average of €5.3bn for 2016-2020 given before.

Reflecting the rise in capex, guidance was not changed for operating profit margins of 12-15% and for average earnings per share growth of 12%-plus per year.

Also, return on invested capital in real terms of 15% will still be targeted, along with gearing to remain in the investment grade zone.

Shares in IAG spiked above 640p early on Friday in a futile attempt to revisit a recent 19-year highs of 676p before lurching lower and as 1100 GMT neared they were down 1.7% at 620.5p.

"Airlines are a long term game; nimble they are not," observed analyst Mike van Dulken at Accendo Markets.

"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."