Davy cuts IAG to 'neutral' as rights issue looms
International Consolidated Airlines Group SA (CDI)
193.70p
11:55 26/02/21
Davy cut its rating on IAG shares to 'neutral' ahead of an imminent painful rights issue for the owner of British Airways.
Air France-KLM
€5.64
11:55 26/02/21
Deutsche Lufthansa AG
€12.31
11:55 26/02/21
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11:55 26/02/21
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International Consolidated Airlines Group
€2.16
17:16 25/02/21
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Analysts Stephen Furlong and Ross Harvey said IAG's rights issue, expected in September, was likely to dilute shareholders by at least 50% to raise €2.75bn (£2.5bn).
IAG's base case plan is to be 24% smaller in 2021 and for passenger demand to take at least four years to return to 2019 levels, Davy said. The company will suffer a €2.9bn operating loss in 2020 before recovering to post a €620m profit in 2021 and profit of €2bn and €2.7bn in the following two years, they predicted.
The Davy analysts reduced their rating on IAG from 'outperform' with a price target of £2 a share. The company, which also owns Aer Lingus and Iberia, has burnt through £178m a week of cash during the Covid-19 crisis. It has attracted criticism from unions and politicians over a brutal programme of job cuts at BA.
"We … downgrade IAG to 'neutral' with its highly dilutive rights issue to come in September," Furlong and Harvey wrote in a note to clients. "The pertinent question for the network airlines, which transfer passengers through large hubs connecting long-haul destinations, is whether they can recover and, if so, how long will this take."
IAG shares were down 2.2% to 213.9p at 10:48 BST. The shares have fallen by almost two-thirds in 2020 amid the biggest crisis in airline history caused by the Covid-19 pandemic.
Davy kept its 'underperform' ratings on Air France KLM and Lufthansa and 'outperform' recommendations on easyJet and Ryanair.
Lufthansa needs to deleverage but government funding has given it €11.8bn of liquidity and the company has said it does not need to raise equity or sell assets cheaply, Davy said. The German airline will post a €4.9bn operating loss in 2020 before returning to profit in 2021, the analysts forecast.
Air France has a long road ahead to reduce its debt and restructure, the analysts said. The company will post an operating loss of €4.1bn in 2020 and €590m in 2021 before returning to profit in 2022, the analysts predicted.
Furlong and Harvey did not publish comments on easyJet or Ryanair.