Broker snap: JPMorgan sees upside at IAG, easyJet and Ryanair

26th Nov 2013 10:11

JPMorgan Cazenove has maintained its 'overweight' rating for IAG, easyJet and Ryanair, saying that it sees 'respectable upside potential' for all three airline stocks on its new revised price targets."Turning towards 2014, we expect to see renewed investor confidence in the low-cost carrier (LCC) business model following 2013's Ryanair-induced skepticism, as well as continued momentum at IAG given Spanish contributions and improving Heathrow competition," the bank said.It said it continues to harbour a strong preference for European LCCs due to the lack of legacy restructuring that could otherwise "thwart their growth ambitions and profit resilience".However, despite its preference for LCCs, JPMorgan did say that the investment case at IAG "continues to intrigue" given that it enjoys the LCC characteristics from its low-cost, profitable Spanish arm Vueling. It said that Vueling "serves as a competitive deterrent to other LCCs"."Furthermore, as Iberia potentially achieves a competitive cost base and resumes growth, market share interception from Air France (particularly to Latin America) is likely, in our view. Lastly, Heathrow continues to improve as a passenger connecting point, potentially shifting share at the expense of Paris and Frankfurt."The bank explained that most legacy carriers in Europe except for IAG "do not appear to be mounting a sufficient short-haul defence". As such, it believes that easyJet, Ryanair and Vueling will "enjoy relatively easy pickings when it comes to market share intercept over the next several years".As for others in the European airline sector, the bank kept a 'neutral' rating for Deutsche Lufthansa and an 'underweight' position on Air France-KLM.BC