IAG to not return to dividend until balance sheet is robust and investment plans more advanced


Intermoney| IAG held its Capital Markets day this morning at its London Heathrow headquarters, where it announced its strategic priorities and medium-term outlook for the Group, as well as the initiatives with which the Group intends to achieve sustainable growth and maximise long-term shareholder returns. The medium-term objectives (2024-2026) include the following:

  • Sales growth will remain attractive thanks to organic capacity growth of 4-5% per annum.
  • Target EBIT margin of 12-15% (vs. 11.7% consensus) and 13.5% in 9M23 and 12.1% in 2021.19
  • ROCE of 13-16% vs. 17% expected by consensus by 2026, although there are few estimates for that date.
  • Leverage of 1.8x dn/ebitda (vs. 0.9x consensus estimate) and 1.4x in 9M23 and 2019.
  • For the time being, they will not return to the dividend. They will do so when their balance sheet is in a robust position and their investment plans are more advanced. The consensus expected a dividend of €0.2/shr for 2024e (similar to what they paid in 2019).
  • Capex will stand at €4.5bn/year, while this year it will reach €4bn. 65% will go to fleet replacement and expansion.
  • They will create an own AOC (operator certified, independent from Iberia) for LEVEL in Barcelona, with a fleet of up to 8 units.
  • They expect to achieve a net profit from their business in Spain of €1,500 million when in 2019 it was €737 million and in 9M23 €831 million.
  • Air Europa acquisition: 20% of shares acquired in August 2022 after exercising a €100 million convertible bond call option. The remaining €400 million will be paid €100 million in IAG shares and €300 million in cash. The deal is subject to regulatory approval, but is expected to be finalised by the end of 2024 and is not expected to impact the company’s leverage ratios.

Assessment: In summary, CMD have announced good prospects, but nothing beyond what the market was already expecting, plus many investors were expecting them to announce a return to the dividend, something they have delayed for the time being. As a result, the stock is not reacting well to the announcement (-3.7%). Even so, the strength of the sector and the ability to maintain demand despite the sharp rise in fares makes us maintain our buy recommendation on IAG with a P.O of €2.2/share. IAG trades at 2.9x EV/EBITDA and 4.5x P/E. We maintain our buy recommendation with a P.O of €2.2/share. We maintain our buy recommendation and P.O of €2.2 (+35% upside).

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