IAG Shares Weak As UBS Cuts Target Price

October 28, 2011

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Shares in International Airlines Group (IAG) fell 1.4 percent, bucking a firmer blue chip trend, as UBS reduced its target price for the network carrier to 240 pence (USD$3.86) from 260 pence after cutting its EPS forecasts in a preview of third-quarter results due on November 4.

UBS says that, in its view, fuel and airport charges are likely to weigh on IAG's Q3 numbers.

"Although IAG has hedged over 50 percent of Q3 fuel requirements, Jet kerosene prices are up 46 percent for the quarter compared to a year ago. We do not think that the full cost of the increase will be absorbed by customers and the fuel hedge. Additionally Heathrow landing fees increase by mid single digits from 1 July," the broker says in a note.

UBS says it has adjusted its forecasts for IAG to reflect the uncertain economic environment, with its EPS estimates cut by 33 percent for 2011, to around 0.15 euros (USD$0.21), and by 14 percent to about 0.22 euros for 2012.

However, the broker is slightly more positive on the outlook for the outer years, and sees an increase in 2013 EPS of around 11 percent.