Is IAG a bargain?

BA has got problems — cancelled flights, industrial action, the share price has taken it badly. Is the company now a bargain?

Article updated: 5 September 2019 10:00am Author: Michael Baxter

Let’s face it, if you fly Ryanair, your expectations will be low. I flew Ryanair for the first time last year, and I was quite shocked by how normal it was. No extra fee for an inside seat, no Michael O’Leary stomping up the aisle, screaming expletives into passengers’ faces. Instead, I just sat on a reasonably comfortable seat, and the air crew were very polite. I was almost disappointed.

BA on the other hand, has a reputation for quality.

But it also faces competition from budget airlines.

How can a quality airline compete with budget airlines? Three into two doesn’t go. Does quality and budget go?

Now BA has been subject to industrial action. I keep hearing from people due to travel by BA who had their plans ripped apart.

The share price pertaining to its parent company, IAG, reflects this — down 66 per cent over the last year. It has risen only modestly over the last five years.

Then again, the EasyJet share price is down over the last five years, Ryanair shares are up over five years, but have fallen massively over the last two years

Airlines eh! They used to say that airlines don’t make money in the long run. Maybe that is no longer true, but it’s clearly a tough business. And for airlines whose prime audience is Brits, the falling pound has been as helpful as a wrong ticket at the departures desk.

But then again, maybe these problems are short-term.

The longer term may not be so bleak — and IAG does have a lot going for it.

The Share Centre’s own analysis says “shares have underperformed the market over the past year but trade on a prospective 2020 PE of just 4.4, which makes them better value than rivals such as Easyjet and Ryanair.“

Last year, profits were up roughly 15% on the year before, dividends are expected to grow faster than inflation.

And IAG doesn’t only fly Brits abroad and back, it’s Europe third largest airline, sixth biggest in the world and of course, it also owns Iberia Airlines.

Adversity creates opportunity. There has been no shortage of adversity facing IAG, has that created opportunity?

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.