Broker snap: Credit Suisse foresees little turbulence at IAG

6th Jul 2011 12:02

Commenting on yesterday´s traffic figures out from International Airlines Group (IAG) analysts at Credit Suisse indicate that AIG has again, "confirmed underlying revenue trends remain intact," even if their 'comparables' have again been distorted by so-called 'base effects'. The most interesting aspect of their analysis note is their indication that good summer trading is the key to the company meeting their 2011 EBIT forecast of Eu701m, which is 10% ahead of the current consensus forecast from Reuters. Even more importantly, they explain how they have, "gauged sentiment on the transatlantic over recent weeks from the US majors as well as the European flags and have been encouraged by confidence levels. Forward booking are reported as robust, with fuel surcharges/price rises sticking - the lag in passing on higher fuel prices may be instrumental in driving positive yields surprises in 2Q and 3Q." As well, the AF/Delta tie-up is expected to reduce transatlantic capacity, thus buttressing pricing further. Lastly, they point out how IAG is now trading at a 2011E P/E multiple of 10.9x and an adjusted EV/EBITDAR multiple of 5.1x, compared to "normalised" 5Y averages of 11x and 8x respectively (FY12E 8.7x and 4.1x). They also highlight what, in their opinion, are the outfit´s highly attractive medium term free cash flow (FCF) generation prospects and improved strategic positioning.Credit Suisse currently has a recommendation of 'outperform' on shares of IAG, with a price target of 330p. As of 11:50AM shares of International Airlines Group are falling by 2.16%, to 253.1p. AB