International Consolidated Airlines Group SA (LON: IAG)

Business Overview
International Consolidated Airlines Group SA is one of the world’s largest airline group, headquartered in London, United Kingdom. The group has 573 aircraft carrying around 113 million passengers to 268 destinations each year.

Financial Highlights - Financial year (31^st December 2019, Euro, million)

(Source: Final Report, Company Website)

In the fiscal year 2019, passenger revenue increased by 5 per cent to Euro 22,468 million as compared to euro 21,401 million in the fiscal year 2018. Total revenue increased by 5.1 per cent to Euro 25,506 million in FY2019 against Euro 24,258 million in FY2018. Statutory profit after tax in FY2019 was Euro 1,715 million, down by 40.8 per cent, as compared to Euro 2,897 million in FY2018. Statutory basic earnings per share was 86.4 cents in FY2019 against 142.7 cents in FY2018. Net debt of the Group increased by 17.7 per cent to Euro 7,571 million in FY2019 as compared to Euro 6,430 million in FY2018.

Share Price Performance  

Daily Chart as on 28^thFebruary 2020, before the market closed (Source: Thomson Reuters)

On February 28, 2020, at the time of writing (before the market close, at 11:30 AM GMT), International Consolidated Airlines Group SAshares were trading at GBX 485.20, down by 6 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 684/GBX 411.50. 

From the technical standpoint, 14 days-Relative Strength Index of the stock is hovering in the oversold zone which is a bullish signal for stock price.

Valuation Metrics
 

(Source: LSE Website)

As on 31^st January 2020, the Price to Earnings multiple of the International Consolidated Airlines Group SA was 4.7x, which was significantly lower as compared with the Travel & Leisure industry of 21.2x, and the EV to EBITDA multiple of the International Consolidated Airlines Group SA was 3.2x, which was significantly lower as compared with the Travel & Leisure industry of 8.1x, reflecting that the company is trading at a lower multiple as compared to its peers.

Growth Catalysts
China Southern Airlines, British Airways signed a joint business contract. This will benefit clients by adding more destinations between China and the UK with a greater choice of flights and improved frequent flyer benefits. The group has consistently delivered a ROE above 20 per cent for the last five years, which is a robust fundamental indicator and shows management efficiency.

Conclusion
Looking forward, the company was impacted by lower demand as a result of China coronavirus (COVID-19). All flights to Mainland China have been suspended in Asia region. The company has shown a mix results in 2019 but affected by higher fuel prices and disruption. Once again, the group has shown the strong and flexible model through decreasing capacity progress to reflect market conditions and by additional cost control. IAG has increased investment in client products and new aircraft which would enhance its growth prospects. In Q4 FY19, the company was robust with an operating profit of €765 million before exceptional items. The Board of the group has proposed a final dividend per share of 17 Euro cents, reflecting a full year dividend per share to 31.5 Euro cents. In total, IAG group will have returned over €4.4 billion to the investors since 2015.

Based on the above rationale, we have given a "Hold" recommendation at the current price of GBX 465.30 (as on 28th February 2020, before the market close at 9:05 AM GMT).

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