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IAG (IAGLN; Baa3, BBB- (now Pos)) S&P to outlook. pos

TRANSPORTATION
  • S&P sees flat EBITDA (vs. consensus +3.7%yoy) and strong cash conversion helping more than offset planned capex of €3.7b. It sees this allowing net debt to move lower from last yrs €9.6b and moving FFO to debt above it's 45% upgrade threshold.
  • Goes on to add "Compared with European airline peers, IAG is well placed to face those operating headwinds, based on its track record of successful cost management and its customer base, which might be less sensitive to price hikes than the customer base of low-cost carriers." Not much protest from us; co does run 12% operating margin which is not far from Ryanair's industry leading 13.5%.
  • We are still cautious on IAG; guidance for FY (ending Dec) lacked detail and it stayed clear of adding any numbers to the "significant free cash flow" it expects. Dividend restart including amount remains uncertain.
  • IAGLN 27s may be of value for those looking at IG airline exposure (Z+114). Only cheap view we have in sector is the FOY29s (Z+224) with a caution to scale risk for single carrier/country (borders Russia) exposure.
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