International Consolidated Airlines Group SA – Operating with Strong Business Model

International Consolidated Airlines Group SA (LON: IAG) is operating as airline group, headquartered in London, United Kingdom.

The Group will announce half-yearly results on 31^st July 2020.

First Quarter of 2020 Highlights (31st March 2020)


(Source: Quarterly Report, Company Website)

As on 7th May 2020, the Group reported the first-quarter update for 2020. The overall results reflected a robust balance sheet and adequate liquidity. With most aircrafts grounded, the passenger capacity declined by 94 per cent from late March. The Company has a robust balance sheet and adequate liquidity position with cash and undrawn facilities of EUR 10 billion as on 30th April 2020. The Group is planning to return to service in the month of July and expect around 50 per cent reduction in passenger capacity and expect its Q2 results to be worse than Q1. The loss after tax (before exceptional items) stood at EUR 556 million with a cash balance of EUR 6,945 million as at 31st March 2020.

Share Price Performance


Daily Chart as of July 10^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

International Consolidated Airlines Group SA shares were trading at GBX 202.50 on 10 July 2020 (before the market close at 8:33 AM GMT+1), which was down by 2.41% against the last day closing price. Stock 52 week High and Low were GBX 684.00 and GBX 159.25, respectively.

From the technical standpoint, 14-day RSI is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Valuation Methodology



*Peers: Stagecoach Group Plc, National Express Group Plc, Ryanair Holdings Plc, and Wizz Air Holdings Plc.
*Currency Exchange rate taken for 1 EUR = 0.89542 GBP.
 
Key Risks

The declining economic conditions potentially impact demand for discretionary travel, and changes in any government policy, funding regimes or the legal and regulatory framework may result in structural market changes or impact the Group’s operations in terms of reduced profitability, increased costs and/or a reduction in operational flexibility or efficiency. 

Conclusion
The Group has a robust balance sheet with adequate liquidity to tackle the situation and have access to facilities from the UK & Spanish Governments and extended RCF (Revolving Credit Facility) to boost liquidity. Most of the Aircraft are grounded; hence, the passenger capacity declined significantly. Once again, the group has shown the strong and flexible model through decreasing capacity progress to reflect market conditions and by additional cost control. At the end of April, the liquidity was stated at EUR 10 billion. The Company is taking initiatives to improve its cash flows and reduce operating costs. The Group appears to be attractive, and once restrictions are lifted, IAG should return to growth.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the current price of GBX 202.50 (as on 10^th July 2020, before the market close at 8:33 AM GMT+1) and will recommend fresh buying at the right time.

Gama Aviation Plc – Strong Global Presence and Offering Support to Multiple Sectors

Gama Aviation Plc (LON: GMAA) is an industrial transportation company providing services related to maintenance, charter, design and fixed base operations, logistics, special missions and management to its customers from business aviation.

Update on FY2019 Results and Impact on Covid-19 (23^rd June 2020)

The Group conducts regular team calls to update and manage procedures, policies and controls to tackle the evolving pandemic. The Company has taken measures to control cashflow related to discretionary expenses. The new CFO planned initiatives to enhance and strengthen the finance function, reporting systems and processes but are delayed due to covid-19 outbreak. The Company has a credit facility of $50 million with HSBC and remained focused on mitigating costs, eliminating non-essential expenditure and improvement in the collection of receivables. The Group expect its Net additional costs in between $1 million to $1.5 million and accounts receivable in between $2.5 million to $3 million for FY2019. The inventory is expected to around $1 million for the period, including an exceptional cost of around $0.6 million. The Company expect EBIT to decline by $0.7 million in FY2019 and will not impact net income.

Share Price Performance


Daily Chart as of July 10^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Gama Aviation Plc shares were trading at GBX 37.50 on 10 July 2020 (before the market close at 8:40 AM GMT+1), which was same against the last day closing price. Stock 52 week High and Low were GBX 88.50 and GBX 31.00, respectively.

From the technical standpoint, 14-day RSI is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Valuation Methodology
 
 

*Peers: Air Partner Plc, Global Ports Investments Plc, Global Ports Holdings Plc and Air France KLM SA.
*Currency Exchange rate taken for 1 USD = 0.79435 GBP.
 
Key Risks

The Company is dealing in an industry where competition and price pressure is very high; also, it varies from product to product and geographical market. The Company would be impacted due to the uncertainty created due to Brexit, as it would result in customer loss and negatively impact the financial performance of the company.

Conclusion
Due to the outbreak of covid-19, the Group’s operations were impacted and result in a decline in operational and financial performance. To tackle the uncertainty, the Company has taken measures to reduce costs and preserve cash. The solid presence in niche infrastructure markets is benefiting the company’s financial and operational performance, primarily in the US and Europe. The company’s main drivers for infrastructure support longer?term growth prospects and remain positive. The Group responds to the competition and pressure through the launch of new competitive product and strategical acquisitions. The company is confident that the business model, financial strength position and market-leading positions indicate growth prospects for the company in the future.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the current price of GBX 37.50 (as on 10^th July 2020, before the market close at 8:40 AM GMT+1) and will recommend fresh buying at the right time.
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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