Broker tips: IAG, Royal Dutch Shell, BP
Liberum reiterated its 'buy' recommendation for shares of IAG following the carrier's latest quarterly numbers, arguing that the improvement in the company's financial performance over the past decade was structural - not cyclical - and that the rating on its shares should match that of low cost carriers.
The broker's analysts said IAG's results were "as expected" and that they did not expect any changes to consensus estimates for the company on the back of those numbers, even if they conceded that it remained to be seen when unit revenue trends would turn positive.
Beyond the company's latest quarterly update, they said the shares' valuation, at an estimated 2019 price-to-earnings multiple of 5.8 times and 3.5 times its EV/EBITDAR, remained "depressed".
Analysts at Berenberg labelled the latest set of quarterly figures from Royal Dutch Shell as "strong", but added that management's warning that the oil giant's share buyback programme in 2020 might not be completed might also raise questions around the buybacks on longer time horizons.
In particular, they highlighted Shell's quarterly cash flow of $12.1bn, which came in 5% ahead of the analyst consensus, despite $0.5bn of pension payments and weaker associate dividends during the period, both of which would have boosted cash flow during a "normal" quarter.
However, the analysts added:"The company has flagged that the macro conditions mean that the buyback programme for 2020 may not be fully completed, as Shell may not be able to afford the buyback, while also reducing gearing to 25%.
"While the intention is clear, this announcement will create uncertainty around the deliverability of the cash return programme to 2025, which could weigh on investor sentiment."
As large as it might seem, BP is in fact "a smaller and more nimble version of its former self" analysts at Credit Suisse said, even as they reiterated their 'neutral' recommendation for the shares and cut their target price.
But in the short-term, even if BP hiked it dividend payout per share sometime in 2020 (versus previous expectations in the market for a hike in the third quarter), its total distribution was set to lag that of its Super Major peers, the Swiss broker said.
So while they backed management's decision to focus on deleveraging the balance sheet - the weakest among its peers due to the Macondo oil spill - the recent appreiciation in the pound-US dollar exchange rate and the vagueness around a potential dividend hike led them to lower their target price for the shares from 605.0p to 580.0p.