Broker snap: UBS lowers IAG's target amid uncertainty

22nd Jun 2011 10:21

While UBS keeps its 'buy' rating on airline International Consolidated Airlines (IAG), it is "looking for the sun amongst the clouds" and cuts its target price on the stock from 320p to 290p."European airlines (including IAG) have increased fuel surcharges since the start of the year, absorbing 50-60% of the fuel price increase and utilising hedging and costs savings to manage the balance of the fuel increase," said analyst Jarrod Castle.He says that if fuel prices stay below $120 - along with "fuel surcharge stickiness" and continued global demand - then IAG could see better-than-expected revenue versus the cost environment in the third quarter."We think Q2 is looking like a strong yield quarter based on our analysis of Atlantic yields, traffic mix the company is reporting, capacity discipline and implied consensus yields. If underlying Q3 pricing were to be 1% higher than our 1% base case we would see a 6% EBIT [earnings before interest and tax] uplift to our 2011e forecasts and 22% uplift to 2011e consensus forecasts," Castle said.However, "given the uncertainty surrounding the development of the cycle we take a slightly lower valuation multiple when setting our Price Target."---BC