British Airways flying high after yesterday's November traffic figures, and a boost from Citigroup.
The airline is leading the FTSE 100 risers at the moment, with its shares up 3.7p to 209.9p. Citigroup has raised its target price from 250p to 280p in the wake of the plan to merge with Spain's Iberia, and said any weakness due to a potential cabin crew strike this month should be taken as a buying opportunity. The bank said:
We revise our target prices for BA and Iberia based on valuation of merged entity and disclosed merger terms. Our merged entity (TopCo) and BA target of 280p is based on 180p mid-cycle valuation, 64p merger synergies, 20p stakes in associate companies that could be disposed or IPO'd, and 12p potential synergies from a joint venture with American Airlines with 50% probability, rounded. We value total merger synergies at £1.3bn.
In view of 16% fall from recent high-point, we upgrade our rating to buy [from hold]. Near term catalyst could be news on American joint venture.
BA could be an aggressive buyer of BMI for its Heathrow expansion potential as well as pre-empting a step-up in competition from its biggest rival, Virgin Atlantic. Lufthansa could compel BA to part with Iberia in exchange for BMI. We would view this trade as a positive for all concerned.
