Friday tips round-up: IAG, Saga

1st May 2015 16:57

Unlike its former state-owned flag carrier rivals, the fact that IAG has carried out a radical overhaul of its legacy practices and staffing means its premium rating is well deserved. Several other tailwinds should help the airline to pull further ahead of its competitors. The company maintained its guidance for operating profits of €2.2bn this year, marking a 60% rise on the year-ago level. IAG will benefit from jet fuel costs lower by 60% from a year earlier and the recovery in the UK and US economies.Productivity improvements at its Spanish unit Iberia mean it can now use fuel-efficient Airbuses to re-launch routes to Latin America, but profitably. Those improving markets and greater efficiency should see the valuation gap continue to widen, writes the Financial Times's Lex column.Saga's expansion plans in both insurance and travel, together with its intention to adopt a more progressive dividend policy, means the shares are attractive on a long-term basis. The company, which is well considered as an insurer, is planning to grow both its insurance and travel arms. In the former, it intends to transfer its model of using a panel of other underwriters to spread risk to grow without having to take on even more risk. The firm is also looking to expand into retirement homes and legal services, for example.But the main attraction for investors is its decision to raise the proportion of earnings which it will pay out in dividends to 60% from 40%. The stock is now trading close to its initial price at the time of stock market debut, trading on 14 times's earnings and yields 3.7%. As well, the one for 20 bonus share will be payable next month. "I have been dubious in the past but would be inclined to buy for the long-term now," says The Times's Tempus.