- International Consolidated Airlines Group SA (CDI)
- 11 December 2024 10:36:14
Source: Sharecast
The bank said constrained capacity on the Transatlantic to/from the UK - a key market for BA at around 40% of revenues - should help IAG to further progress pricing in 2025.
"This is supported by early evidence from our fares tracker and underpinned by the macro outlook for the US, the UK and Spain," it said.
"With fuel set to be tailwind, we see scope for another year of ahead-of-consensus earnings growth in 2025 (DBe EBIT +6% versus consensus)."
DB also said margins were set to return to previous peak levels as a minimum.
"We expect IAG to meet the target set at the 2023 CMD for margins to be in the 12-15% range, forecasting 14.3% in 2026 (DB EBIT +8% versus consensus), up from 11.9% in 2023 and in-line with the 2018 peak," it said.
"We think the journey towards a better BA has only just begun, and a key driver of the margin uplift is the £7bn transformation program which includes more than 1,400 initiatives."
Deutsche said that improvements at Aer Lingus, the continued leveraging of the Spanish platforms and growing IAG Loyalty should also help.
The bank also highlighted a strong free cash flow outlook and said there was room for additional returns as well as M&A. It assumes a further €700m share buyback in 2025 buts see scope for "a lot more".
Deutsche Bank pointed to an attractive valuation and some potential positive catalysts. It noted that IAG trades on a 2025 EV/EBITDA of around 3.3x, a price-to-earnings multiple of about 5.2x and offers a 3% dividend yield underpinned by a 13% estimated free cash flow yield.
"These multiples compare very favourably versus its history, especially early-cycle ones," it said.
DB said the revised price target implies around 40% upside.
"In addition to EPS upgrades and further share buybacks, we expect IAG to benefit from potential MSCI re-inclusion and money returning to UK-focused funds," it said.
At 1035 GMT, the shares were up 2.4% at 288.70p.
