Shares in International Consolidated Airlines Group (LON:IAG) have slipped into the red in today’s session, as analysts at HSBC trimmed their rating on the stock, arguing that while the British Airways parent is a ‘great company,’ it is ‘not as great as the market believes’. The broker has pointed to cashflow and North Atlantic challenges for the group, which also owns Iberia, Aer Lingus and Vueling.
As of 10:09 GMT, IAG’s share price had slipped 1.18 percent lower to 543.50p, underperforming the broader London market, with the benchmark FTSE 100 index currently standing 0.03 percent lower at 7,380.91 points. The group’s shares have lost about 0.2 percent of their value over the past year, but are up by some 23 percent in the year-to-date.
HSBC trimmed its stance on IAG from ‘hold’ to ‘reduce’ today, while raising its price target on the shares from 450p to 490p, noting that the British Airways and Iberia owner is the “best-run legacy airline in Europe” with advantages from labour relations and Heathrow airport. The analysts, however, expect cashflows to be challenged in the future and further forecast a vulnerable North Atlantic and Aer Lingus outlook.
Sharecast quoted HSBC as saying that while Aer Lingus has outperformed its expectations since it was acquired by IAG in 2015, the bank remains unsure of the sustainability of its margins, given the expansion of Norwegian carriers in the North Atlantic, a key market for the Irish carrier. The analysts are also cautious about trading in the North Atlantic given growth by secondary European carriers, long haul, low cost carriers, the deployment of 737MAX and A320NEO aircrafts and the growth ambitions of Air Canada and Aer Lingus.
The comments come after IAG updated investors on its full-year performance last week, posting a fall in revenues as it suffered from sterling weakness. The British Airways parent, however, unveiled plans to increase returns to investors via share buyback.