Berenberg lowers target price on IAG, retains 'buy' rating
Analysts at Berenberg lowered their target price on British Airways parent International Consolidated Airlines from 375.0p to 300.0p on Monday but said IAG's planned equity raise paved the way for "unrivalled consolidation" and dividend flexibility.
Berenberg said IAG's leverage and liquidity will likely return to palatable levels by 2022 and stated its sensitivity analysis suggested pro-forma price-to-earnings ratios will remain more than 10% below mid-cycle levels.
However, while the German bank cut its estimates on an expected slower revenue trajectory to one-third below 2019 levels, Berenberg thinks there will asymmetric upside in IAG's shares and opted to retain its 'buy' rating on the stock.
"Even through a slow recovery, we expect opportunities from overhangs related to IAG's rights issue, the Air Europa purchase and labour/fleet restructuring to fall away," said the analysts.
Berenberg highlighted that IAG currently trades on an enterprise value to earnings before interest, taxes, depreciation, amortization and rent of 3.2x its 2022 estimates, while enterprise value to invested capital also remained "compelling" at 0.9x given that it expects the group to generate a return on invested capital in excess of the weighted average cost of capital through the cycle and in 2022 - well before its peers.