Broker snap: Investec upgrades IAG to hold

8th Jun 2012 09:40

Investec has upgraded its recommendation for British Airways and Iberia owner International Consolidated Airlines Group (known as IAG) from sell to hold despite cutting its near-term forecasts.To reflect recent trading, the BMI acquisition, the recent fall in jet fuel as well as dollar strength and sterling's re-rating against the euro, Investec has cut its EBITA (earnings before interest, tax and amortisation) forecast for the full year from €84m to -€1m, broadly in line with IAG's guidance of "break-even".However for 2013, the EBITA estimate has been hiked from €149m to €567m due to lower fuel costs - with IAG spending around €6bn per annum on jet fuel, a $100/mt change in the price moves EBITA by 100%, the broker said.By 2015, the company expects EBITA to be €1.5bn but Investec thinks that €1.2bn is a more likely figure. "Establishing a fair value for IAG is complicated by the profile of profit expectations over coming years and confidence in management's ability to extract sustainable merger synergies and a structural cost-base reduction. Our model shows returns improving over the next three years, albeit still below cost of capital," the broker said.The target price for IAG has been lifted from 100p to 160p.BC