Wednesday, March 22

Morgan Stanley bets on a 32% rebound in IAG

IAG shares opened this Monday leading the IBEX 35 and looking for the resistance zone of 1.9 euros, after receiving a positive recommendation from Morgan Stanley.

The airline aims to close January with a rise of 11 percent, but far from the highs and the euphoria that drove the value at the start of the year.

Prices have been leaving dangerous downward trails exacerbated by the unfriendly context of a market focused on the Fed and the geopolitical tensions in Ukraine.

The greatest risk that floats in the market is the possibility of a capital increase, a possibility on which this Monday the economists of Morgan Stanley.

The commitment to IAG

Analysts at the US bank resumed coverage of IAG with a note of ‘overweight’ and a target price of 2.5 euros per share, which leaves a potential rebound of 32 percent.

Morgan Stanley analyst Carolina Dores considered that the potential for revenue recovery and the superior margin of IAG they will become clearer as demand from the UK and Ireland puts the group on a par with its peers this summer.

In this sense, a catalyst for Iberia’s parent company will be its greater relative exposure to the most attractive markets in North America and South America.

This expert recognizes, like many other investment banks, that IAG has a higher risk of dilution due to a possible capital increase, because it has burned more cash in the pandemic and has had less government support than its competitors.

But nevertheless, Morgan Stanley considered that this risk perceived by the market “is not justified”.

What’s more, the US bank said, “IAG is now among the least expensive airline stocks in Europe, trading at a discount to its historical valuation across all metrics.”

Air Europa, in the spotlight

The support of a weight bench as Morgan Stanley boosted IAG’s listing and overshadowed market concerns about Air Europa’s situation, amid negotiations to close the purchase of the airline from the Hidalgo family.

As published on Monday by the newspaper ‘Expansión’, Air Europa urgently needs 200 million euros to avoid bankruptcy. The deadline set to close the purchase is this Monday, but the lack of agreement indicates that the negotiation times could be extended.

Even though analysts value Air Europa’s strategic contribution to IAG, the market is also not clear that it could be the best option at this point.

“It has had ups and downs and I think the company is not very clear about what is going to be the best,” said Victoria Torre, director of Digital Offer at Singular Bank on the podcast.

Lights and shadows in recovery

What is clear is that the comeback on the stock market will come hand in hand with the boost in activity and the end of restrictions on mobility. The problem is that the sector offers lights and shadows.

If you go further, Ryanair showed great caution this Monday regarding the recovery of travel, after reporting losses of 96 million euros in the third quarter due to the impact of the omicron variants.

Conversely, Easyjet He commented that his flight reservations skyrocketed after the relaxation of restrictions in the United Kingdom, for which he anticipated a “strong” summer and with levels close to the pre-pandemic situation.

Although it cannot be directly extrapolated to other companies because they have different business models, “it does denote a change in trend,” Banco Sabadell analysts said in this regard.

In any case, they are lights and shadows that reflect the uncertainty that the sector still has to face.

For IAG, the recovery of 1.8 euros is an optimistic sign that suggests an attack on the psychological zone of 2 euros per share. In this case, there would be options to attack the 2.2 euros, whose overcoming would give way to a significant upward momentum.