Deutsche Bank has downgraded International Airlines Group to ‘hold’ from ‘buy’ after a recent rally in the share price.
The bank said the owner of British Airways had risen 27% since December 2020, fuelled by the successful vaccine roll out in the UK and US and growing hopes that international travel will return this year.
As a result, the stock – which closed on Friday at 215.8p – is now close to Deutsche Bank’s price target of 220p.
The bank said: “History suggests that early in a cycle, a network airline with IAG can trade on elevated multiples and we note the 12x P/E and 6.5x enterprise value/earnings before interest, tax, depreciation and amortisation that that it traded on between 2013 and 2015 on average.
“However, on our 2023 forecasts and assuming a required return of 15% pa, the shares are already there. Were we to look to 2024/25 instead, we could highlight 30% potential further upside – however, we don’t think the timing is right for this to be realised, with positive re-opening news already in the price, and some downside risk to consensus forecasts near-term.”
Deutsche Bank noted that long-haul leisure is a “key profit driver for the group. While we have no doubt that a recovery will come for this segment, hot on the heels of short-haul and well ahead of corporate, the timing remains hard to predict.”
It concluded: “We continue to see a lot to like about IAG. [But] we think the market is pricing in an appropriate pace of recovery. As such, we leave our 220p target price unchanged, and downgrade to ‘hold’ with only 2% further upside to shares implied.”