Picture supply: Worldwide Airline Group
Listening to passengers speaking about British Airways, there is no such thing as a scarcity of complaints. Listening to shareholders in BA’s father or mother firm Worldwide Consolidated Airways Group (LSE: IAG) nevertheless, I’d be stunned to listen to many complaints about latest efficiency. It was the greatest performer within the FTSE 100 index final yr – and the IAG share value has doubled over the previous yr.
Regardless of that, the price-to-earnings (P/E) ratio continues to look comparatively low-cost. At 8, not solely does it look fairly modest in absolute phrases, it is usually properly off its highs over the previous a number of years.
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So, is there room for additional share value progress at IAG – and ought I to take a position?
Issues may get higher from right here
I reckon there might be house for the inventory to maneuver up much more.
A key cause for the constructive temper amongst buyers over the previous yr is that IAG’s enterprise efficiency has been enhancing. A have a look at the earnings per share demonstrates this.
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Issues are usually not but again to the place they have been in say, 2018, however the course of journey has been constant and constructive.
Income in the meantime, is forward of the place it stood in 2018. So, if the corporate retains a good rein on prices, that ought to supply a chance for income to maneuver even greater.
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Within the first 9 months of final yr, web debt fell by round a 3rd. In November the corporate launched a share buyback, which I take as an indication of economic confidence on the a part of the board (although personally I’d be extra attracted by the cash getting used to pay down debt or enhance the dividend).
Civil aviation demand has been excessive and the corporate has struck a constructive observe concerning the outlook for this yr with out but moving into detailed forecasts.
Am I prepared to take a position?
Nonetheless, I’ve some issues.
One is what IAG’s years of relentless cost-cutting and testing passengers’ loyalty imply for the enterprise over the long run Sure, these days it has been making an attempt to raise parts of the passenger expertise. However I feel that could be a reflection of its realisation that it had more and more misplaced key aggressive benefits as prospects questioned why they need to shell out large cash for airways with little in the way in which of service on many routes.
I additionally see a threat that, when the following large demand shock comes for civil aviation, it may as soon as once more damage revenues, income – and the share value.
From pandemics to terrorist assaults and recessions, such exterior shocks are inclined to pop up every now and then and sit exterior IAG’s management to a big extent (or utterly).
So whereas I feel the share value may maintain transferring up, I don’t like the chance profile on the present value and so haven’t any plans to take a position.
