Category Archives: $IAG

$IAG – (British Airways) – why is stock higher after IT outage disrupting 200,000 passengers?

The FT Big Read on Friday wrote a story of how cost cutting at BA had gone too far and has lead to the IT outage leading a terrible experience for travellers over the bank holiday weekend.

But why has the stock not reacted – in fact it has gone up?

2CentView is:

The Stock is still relatively cheap trading at 7x 1 year forward EPS – the US Airlines trade on an average of 11x.

An Airline has to be focused on managing costs – this is very important to shareholders – more important than business class travellers having luxury chocolates!

IAG operating profit has gone from 500mm in 2011 to 1.5bn in 2016 (according to FT) under the leadership of Willie Walsh – a whopping 300%  increase over 5 years! In the same period revenues have only gone up 20% – so most of the operating profit has come from cost savings.

The Balance sheet is solid – the Credit default Swaps actually tightened 2bp – so the compensation bill will not affect the companies credit and is probably insured.

2CentView has a core position in $IAG, buying the position at around 4,10 and taking profit at 500 and 600 – at 4.10 it was on an incredible p/e ratio of only 5x when first mentioned by 2CentView.
The stock could easily go to a multiple of 9 (still 2 multiple points lower than US Airlines) which would put the the stock at 7,50.

Dividend yield 4%.

The IT failure was a disaster and the company needs to ensure it does not happen again – but managing costs is most important when running an airline – for shareholders anyway!

2CentView has a core position in $IAG (about 2.5% of the portfolio) , next target 700.

$IAG – hit long term price target after reaching record operating profit….can it go higher?

First tweeted this name December 11, as low p/e stock with potential upside following rally in US Airlines.

P/E then was 5 with yield of 5%! – now it is around 7 and has the potential to go to 8x – so around 660p.

Took some more profit at 600, keeping a core position as the yield is great and lower oil prices should help drive profits higher.

Average P/E in larger US Airlines now around 9x, so depending on your view it could go even higher. 2018 Forward EPS projection – 99 EUR Cents, Consensus target price = 600, which could be revised higher following today’s results.

2CentView has a core position in IAG, trimmed to 2.5% of the portfolio after recent run up.

Post Trump:US Airlines converge to FairValue, one bargain remains…

US Airline stocks have finally started to converge to a more reasonable valuation of around 8 to 9x P/E from 5-6x.

It took a position by Warren Buffett for investors to finally start buying US airlines – the Trump election victory also helped – but it does go to show most highly paid asset managers are just sheep!

See:

http://www.2centview.com/2015/05/25/the-american-airlines-valuation-dilemma-4-4x-2015-eps/

Unfortunately, the only bargain left now is not in the US but Europe – IAG – trading on P/E of 6x and yield of 6%.

IAG FV = 600, yield 6%.

2CentView has held a core position in American Airlines for 3 years and has long term price target of $60.

2CentView also has a trading position in IAG, opened at 421, take profit target 490, long term price target 600.

Post Brexit Opps: EZJ, IAG – pricing in a ….

Easyjet and IAG stocks have been battered post Brexit – both are pricing in a 50% cut to EPS.

If you think this is overdone trade – then this could be good time to get in – both yielding above 3%, so you are paid to wait.

Easyjet:

FV EPS Cut assumed

1080 50%

1350 25%

1500 0%

IAG

FV EPS Cut assumed

374 50%

485 25%

550 0%

The Brits love their holidays, even with sterling at 1,33 it will not deter holidaymakers to the extent priced in the current valuations.

Trade to a 25% EPS cut as follows:

Trade: EZJ Buy if stock gets to 1150, target 1350, stop 1020

OR

Trade: IAG Buy if stock gets to 410, target 485, stop 365