Friday was a largely red day across the FTSE 100, with the fall led by International Consolidated Airlines (LSE: IAG). By late morning, the IAG share price had fallen by 5%, capping a weak few days.
The company did get a bit of a boost in November, as successful Covid-19 vaccine results provided a rare bright patch for the stock market in 2020. But after that brief blip, the shares have pretty much stagnated. Over the past 12 months, since just before the pandemic struck, IAG shares have lost around 75% of their value. But should I buy them now for my Stocks and Shares ISA?
Any hoped-for resurgence in the aviation business has received a hefty blow in 2021. It’s all down to the new, more contagious Covid-19 strain, and the resulting lockdown. And with the UK not expecting to complete its vaccine rollout until around September, I don’t see any great summer return to the skies.
But on the upside, I reckon the British Airways owner has a strong enough balance sheet to last it through the crisis. So, at today’s severely depressed IAG share price levels, is it a bargain? Should I consider putting IAG on my 2021 ISA shortlist?
A nice acquisition
The IAG share price valuation might be pretty depressed right now. But the same is true for other airlines, and IAG is making the most of it. IAG’s Iberia subsidiary has been in the process of acquiring Air Europa, and the agreement has just been modified. An announcement Friday revealed the amount to be paid has been slashed by half, to €500m. And more, Iberia doesn’t have to pay until the sixth anniversary of the acquisition’s completion.
So IAG gets to buy up another airline at half price. And it doesn’t have to pay for it for six years. I’ve seen plenty of acquisitions in my time, but it’s hard to recall one more attractive than that. If the IAG share price isn’t exactly soaring, deals like this are surely helping to hold it up.
And this news comes on the heels of a boost the firm received at the end of last year. In December, British Airways agreed a five-year term-loan Export Development Guarantee Facility of £2bn, partially guaranteed by UK Export Finance. With drawdown planned for early 2021, it adds another chunk of liquidity to the bottom line. Prior to the new facility, IAG had had cash and undrawn facilities of €8bn at 30 November. That reinforces my feeling that IAG has comfortable liquidity.
IAG share price cheap?
So am I tempted to buy? In one way I am. That’s because I’m seeing increasing signs, like the events I’ve covered here, that the firm’s long-term future is healthy. At the same time, I think the IAG share price fails to reflect that future. With the current short-term pressure and massive uncertainty, that does not surprise me.
But for me, I still see airlines in general as too risky. Maybe we won’t see anything as bad again as this pandemic in the coming years. But airlines seem to be uniquely susceptible to economic downturns, to fuel prices, and to a whole host of factors beyond their control. I think IAG shares will recover. But I’m sticking to safer sectors.
