IAG (LSE: IAG) shares were the worst-performing stock in the FTSE 100 last year. Shares in the company, which owns the British Airways brand, slumped 62% overall in the year. The second-worst performing investment in the UK’s leading blue-chip index was Rolls-Royce. Shares in this aerospace business lost 49%.
Do IAG shares offer me value?
As a value investor, I pay close attention to the market’s worst-performing stocks so will I be buying IAG?
Sometimes, I find bargains that go on to produce high returns, although that’s not always guaranteed. Some companies can stage a recovery, but others can struggle. There’s never any guarantee a business will be able to turn itself around. Especially if its problems are out of its control.
That seems to be the case with IAG. Despite the company’s best efforts, government restrictions on travel, brought in to control the coronavirus pandemic, have devastated sales and profitability. Total revenue for the nine months ending September 30 2020, declined 66%. The group reported a statutory loss after tax of €5.6bn for the period.
These figures suggest that the outlook for IAG shares is highly dependent on when the group can restart flying at full capacity. This may be some time away. At this point, it’s impossible to tell. Some industry experts have suggested that the sector could return to growth by 2025. However, these are just estimates. It could take much longer, or the recovery could be much faster.
Staying alive
In the meantime, IAG has to concentrate on staying alive. To that end, British Airways recently received commitments from the government for a £2bn UK Export Finance guaranteed five-year loan facility. That’s on top of existing financing agreed over the past 12 months. Excluding this facility, IAG had cash and undrawn banking facilities of €8bn at the end of November, according to a company press release.
This may or may not be enough to see the group through the current crisis. With so much uncertainty surrounding IAG shares, it’s quite difficult for me to decide whether or not they’re worth buying at current levels. On the one hand, the stock is trading close to its lowest level in several years, which suggests to me that it’s cheap. However, on the other hand, I’m finding it very difficult to establish whether or not the shares are truly cheap because I can’t predict the future.
If global travel restrictions continue into 2022, it could be years before IAG is able to stage a recovery. But, if the worldwide vaccine rollout starts to bring the global Covid-19 outbreak under control towards the end of this year, I think there’s a high probability IAG shares will take off. Either of these options is likely, in my opinion. In the meantime, management will need to focus on keeping costs down and getting ready for the eventual recovery in international travel. It all means I won’t be buying for now.
