Broker snap: Credit Suisse ups target for IAG, but uncertainties remain



LONDON (ShareCast) - Credit Suisse (NYSEArca: CSMA - news) has raised its target price for International Consolidated Airlines Group, otherwise known as IAG, but has retained its 'neutral' stance on the stock.

The company announced last week that, including the impact of Hurrican Sandy and the continued weakness in its Spanish airline Iberia (now undergoing a restructuring), it now expects to make an operating loss for 2012 in the region of €120m, after bmi trading losses and exceptional items.

Credit Suisse, which had previously forecast a loss of €95m, has now lowered its estimate to €122m.

However, after factoring in a lower fuel bill next year (given recent jet fuel spot price weakness) and 2% lower labour costs, the broker has raised its underlying earnings before interest and tax (EBIT) forecast for 2013 from €241m to €372m, though this is still 25% behind the Reuters consensus estimate of €495m. As such, the target price for the shares has been raised from 140p to 184p.

Nevertheless, Credit Suisse reckons that the medium-terms plans for IAG's operations in Spain need some clarity:

"On one level, we expect some market relief that IAG remains confident in achieving €1.6bn in EBIT by 2015. BA's plans to drive EBIT of £1.1bn in this time, representing a return to its prior peak performance plus IB/bmi synergies, highlight comfort with the
business' development.

"However, in our view uncertainties exist regarding Iberia (Madrid: IBLA.MC - news) 's three-year development with the prospect of a triple-pronged approach in Spain of juggling IB mainline, IB Express and Vueling (subject to deal completion) to add a positive Spanish contribution to IAG by 2015."

Shares were up 0.41% at 171.3p in mid-morning trade on Monday.


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