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IAG profits take off

The owner of British Airways posted robust half-year numbers ahead of its imminent takeover of Aer Lingus
August 2, 2015

Cost cuts and plunging fuel charges put a rocket under first-half operating profits at International Consolidated Airlines (IAG). The strong performance came as the owner of British Airways and Iberia waited to finalise its planned Aer Lingus purchase, the deadline for which has been extended to 18 August to allow major shareholder Ryanair to sign off the deal.

IC TIP: Buy at 547pp

Chief financial officer Enrique Dupuy says the company is "tackling every possible front in the battle of cost savings", although he acknowledged the pace of the reduction achieved in the second quarter - 7 per cent year on year at constant currencies - was unlikely to continue. The restructuring of Iberia is "still flowing through", he says, and a new salary agreement at low-cost carrier Vueling will work itself out of comparative numbers in the fourth quarter. The tailwind of lower fuel costs is also set to blow more strongly this year and in 2016, he adds.

Capacity rose by 5.3 per cent in the first six months thanks to growth in Vueling's fleet and restored Iberia routes. Passenger revenues increased by 11.5 per cent for the half, but that was largely driven by beneficial currency movements; IAG reports in euros, which have weakened. Air fares have been falling in constant-currency terms.

Analysts at Liberum expect adjusted pre-tax profits of €2.08bn (£1.46bn) this financial year, giving adjusted EPS of 75.6¢, up from €1.11bn and 41.6¢ in 2014.

INTERNATIONAL CONSOLIDATED AIRLINES (IAG)
ORD PRICE:547pMARKET VALUE:£11.1bn
TOUCH:546.5-547p12-MONTH HIGH:630pLOW: 306p
DIVIDEND YIELD:NILPE RATIO:13
NET ASSET VALUE:235¢*NET DEBT:96%

Half-year to 30 JunTurnover (€bn)Pre-tax profit (€m)Earnings per share (¢)Dividend per share (¢)
20149.31554.2nil
201510.441215.8nil
% change+12+166+276-

Ex-div:-

Payment:-

*Includes intangible assets of €2.58bn, or 127¢ a share £1=€1.41