Despite a slight rise in the price of oil, British Airways owner International Airlines Group has climbed to the top of the FTSE 100.
Rising crude signals the prospect of higher fuel costs for transport groups, but ahead of results at the end of October and an investor day in November, IAG has been lifted by a positive note from Morgan Stanley. The bank’s analysts said:
IAG moves to our top overweight pick in the sector – we raise our forecasts 3%-12% and the price target moves [11% higher] to €10.00, leaving around 20% upside. Besides third quarter 2015 trading momentum we see further opportunities for synergies, costs, cash flow and product leverage to be presented at the capital markets day on November 6.
The bank added:
We think there are four interesting levers for upside for IAG – topics which we expect to be covered at the upcoming capital markets day. 1) Aer Lingus: how IAG can capitalise on benefits of increased Atlantic exposure as well as potential rationalisation of short haul; 2) Unit cost: there remains more scope for improved cost metrics particularly in BA short haul and group supplier consolidation; 3) free cashflow growth: helped by likely review of capital expenditure profiles at lower fuel price levels and 4) Product enhancements: exploring expansion of the Avios [air miles currency] platform.
IAG shares are currently up 24.5p at 591.5p.
Morgan Stanley also has an overweight rating on easyJet with a price target raised from £19.10 to £19.80:
EasyJet has retraced early summer weakness on the back of improved volume momentum and strong summer trading. 2016 estimated PE of 10.8 times is attractive, but we look for expanded commentary on mid-term financial and return targets at the 2015 results on November 17.
EasyJet is up 58p to £17.58.
