The International Consolidated Airlines Group (LSE: IAG) share price fell 7% in early trading Friday (7 November), after third-quarter results disappointed.
CEO Luis Gallego said the company is “on track to deliver another year of growth in revenues, profit and shareholder returns.”
Operating profit grew 2% from the same period a year ago, to €2.05bn — though it did fall short of forecasts. Adjusted earnings per share climbed 27% for the nine months. And the company announced a dividend of 4.8 eurocents per share.
International pressures
Passenger unit revenue fell 2.4%, mostly due to adverse foreign exchange movements. And IAG, as it’s known, saw a 7.1% drop in revenue on North Atlantic Routes — about half of which it put down to currency impacts. With the US government shutdown closing in on 40 days, shareholders presumably expect a tough start to Q4.
Global trade wars, geopolitical conflict, and concerns ahead of the UK budget are all weighing on the desirability of foreign travel right now.
This was just one quarter, and an internationally tricky one at that. And against the background, I think it was a pretty decent performance. Investors in airline shares should expect short-term turbulence and be able to look calmly beyond it — though this one seems barely enough to switch the warning light on.
It’s cash that counts
For me, at challenging times in the industry, it’s all about liquidity. And on that front, I like what I see.
Regarding the shareholder returns the CEO spoke of, the dividend yield isn’t huge at a forecast 2.3%. But IAG has almost completed its planned €1bn share buyback. And the boss hinted at news of “further shareholder returns when we report our 2025 full-year results in February.“
Net debt is down 20% from the same time last year. And IAG’s net debt to EBITDA ratio (excluding exceptionals) fell to 0.8 times, from 1.1 times. In the early years following the Covid pandemic in 2020, liquidity looked precarious.
But today I don’t really have any worry on that front. And with the IAG share price still way down from pre-Covid levels, I think I’m seeing good value.
What’s it worth?
We’re looking at a forecast price-to-earnings (P/E) ratio of 6.6 this year. IAG has maintained its full-year outlook, so I don’t expect any downgrades. I do think airline stocks deserve to be more lowly rated than the FTSE 100 average, as they carry more than average risk. But that looks overdone to me, and I believe there’s some safety margin there.
So does this latest IAG share price give us a buying opportunity? It depends on what kind of investor we are. And there are two types: those who buy airline shares and those who don’t.
I don’t, because I mainly see a commodity service competing solely on price, with too many uncontrollable external factors. But for those who do, I think IAG has to be worth considering at today’s depressed valuation.
