Liberum says IAG's rating should match those of low cost carriers
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".
"Clearly, the market is still sceptical about the sustainability of returns and margins at IAG, and the degree to which improvements over the past ten years have been structural rather than cyclical," they said.
Indeed, in their judgement the structural step change in IAG's return on invested capital was already a match for the leading LCCs.
"We believe IAG's rating should also match that of the LCCs, although we accept that this is unlikely to be realised in the near term. Our recommendation remains BUY, with an unchanged target price of 680p."