HSBC has cut its rating on British Airways owner International Consolidated Airlines Group (IAG) stock to reduce but has raised its target price to 590p from 570p. The bank states that the market has overreacted to IAG’s first quarter profits of €280 million compared to €160 million in the year-ago period and ahead of analysts’ forecasts of €206 million, and is overlooking pressure from rising fuel prices.
HSBC predicts annual declines in profit for fiscal years 2018 and 2019, but it stated that it likes the concept of IAG buying Norwegian: “We are conceptually enthusiastic about a potential Norwegian transaction,” HSBC said. “However, we recognise this is a minority view and would expect the markets to react cautiously to the leverage consequences of any acquisition.”
The bank goes on to state that any IAG-Norwegian deal would be complex: “We think progressing the deal would be complex as multi-player negotiations would play out not just between IAG and Norwegian but also with the potential lessors that are considering acquiring Norwegian’s aircraft and the two aircraft OEMs (original equipment manufacturers) that we expect would also have veto rights over any deal since aircraft orders of the scale that Norwegian has placed typically have change of control provisions.”
Eagle-eyed readers of yesterday’s newsletter will have noticed the major typo in the headline – Ethiopia is of course in East Africa. Our humblest apologies for the gaff!